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EXPORT PROCESSING ZONES AUTHORITY 1 | P a g e

1. Executive summary.....................................................................................................72. Introduction & Background..........................................................................................73. Situational Analysis....................................................................................................13

3.1. Macroeconomic Environment..............................................................................133.2. Political environment...........................................................................................153.3. Social Environment..............................................................................................163.4. Technological Environment.................................................................................163.5. Environmental Factors (Ecology).........................................................................173.6. Legal and Policy Environment..............................................................................173.7. Competitors.........................................................................................................203.8. Microeconomic Environment...............................................................................22

3.8.1. Stakeholder Analysis....................................................................................................................22

3.8.2. SWOT Analysis.............................................................................................................................23

3.8.3. Financial Performance Overview.................................................................................................25

3.8.4. EPZ Program Performance Overview...........................................................................................28

4. EPZA Strategic Direction 2014-19..............................................................................354.1. Vision................................................................................................................... 374.2. Mission................................................................................................................. 384.3 Core values..........................................................................................................384.4 Strategic Themes.................................................................................................384.5 Strategic Outcomes.............................................................................................394.6 Tag Line...............................................................................................................39

5. EPZA Strategy............................................................................................................405.1. Product................................................................................................................ 405.2. Market................................................................................................................. 42

5.2.1. Market Segmentation..................................................................................................................43

5.2.2. Sector Segmentation...................................................................................................................43

5.2.3. Target Market..............................................................................................................................45

6. Implementation plan: Balanced Scorecard approach.................................................466.1. Customer Perspective..........................................................................................47

6.1.1. Increase Business Growth and Citizen Value...............................................................................47

6.1.2. Increase Customer Attraction and Retention..............................................................................48

6.1.3. Improve the EPZA brand..............................................................................................................48

6.2. Financial Perspective / Stewardship....................................................................48


6.2.1. Reduce Cost of Doing Business....................................................................................................48

6.2.2. Increase net foreign exchange earnings......................................................................................49

6.2.3. Improve Financial Performance...................................................................................................49

6.3. Process Perspective / Internal Business Process..................................................496.3.1. Improve Business Operating Environment..................................................................................49

6.3.2. Improve Investment Levels..........................................................................................................50

6.3.3. Improved Internal Business Processes.........................................................................................50

6.3.4. Improved Policy environment.....................................................................................................50

6.3.5. Diversify investment and market opportunities..........................................................................51

6.3.6. Build Strategic Partnerships.........................................................................................................51

6.4. Organisational Capacity (Learning and Growth/People, Technology and Tools). .516.4.1. Improve Corporate Culture..........................................................................................................51

6.4.2. Optimise Human Capital..............................................................................................................51

6.4.3. Embrace knowledge Management..............................................................................................51

6.5. Monitoring and Evaluation Framework................................................................51Appendix 1: EPZA Financial Projections 2014/15 to 2018/19........................................52Appendix 2: Tier 1- Balanced Score Card Implementation Matrix - EPZA Strategic Plan 2014-19......................................................................................................................... 55

Foreword


I take pleasure in presenting the 2014-2019 Strategic Plan for Export Processing Zone Authority (EPZA). Over the past 6 years as chairman of EPZA, I can take note that EPZA has faced numerous challenges and similarly numerous opportunities for expansion. The full implementation of the past strategic plan 2009 -2013 faced with a number of policy, institutional and market challenges, despite which I can report that there have been some notable areas of success.The EPZA Board has persistently sought to highlight to the Government and to stakeholders, the abundance of opportunities that EPZ investors can take advantage of and therefore fully utilize the current extensive zone facilities and export potential open to investors in the EPZ Program. The Ministry of Industrialization and Enterprise Development has engaged with the Authority and given a very clear mandate to EPZA to support Kenya’s industrialization effort and to align that support to Kenya Vision 2030, particularly the second 5 year Medium Term Plan (MTPII). This resulted in EPZA Board and Management crafting this 5 year strategic plan which aims to scale up and streamline EPZA operations in order to realize this vision. The key drivers of this plan are a desire to contribute to a greater extent to building a vibrant, dynamic and high growth economy for Kenya through the promotion of investment and through export trade development. EPZA will explore new markets and products that will contribute to the improvement of the Kenya’s balance of trade as well and will as well provide significant employment to absorb the ever expanding labour force. I have full confidence that by working together with the Ministry and other strategic partners, our dedicated management and staff, we will meet and overcome the challenges ahead of us, by being clearly focused on implementing this 2014-2019 Strategic Plan.I certainly look forward to the Board reporting periodically on progress made in the years ahead.

Mathenge Wanderi

Chairman, Board of Directors

Export Processing Zones Authority

Preface


I am delighted, as the Chief Executive Officer (CEO) of the Export Processing Zones Authority (EPZA), to present the 2014-2019 EPZA Strategic Plan. This plan builds upon our previous strategic plan and outlines key goals, objectives and strategies to be pursued, thus providing EPZA’s strategic direction over the next five years.The primary impetus for the Strategic Plan is a desire to move EPZA away from the traditional approach to doing business, towards the next level of performance, through scaled up production and sustainability. We have adopted the Balanced Scorecard as a strategy formulation and performance management tool. Our strategic themes during the plan period are organisational excellence, customer focus and brand positioning. The vision and mission for the Authority have been re-crafted and the core values re-stated. In addition, a new tagline “Making Investments Happen” has been adopted to re-energise the EPZA team to greater achievement. The key to this new paradigm shift entails the optimal utilisation of available human, physical and financial resources, embracing knowledge management, enhancing technology, improving corporate culture, forming strategic partnerships and the streamlining of all business processes to reduce the cost of doing business for EPZ enterprises. We will thus increase investment levels, improve the policy environment and business operating environment, diversify investment opportunities and also increase net foreign exchange earnings and investment levels; all leading towards improved financial performance, improved customer attraction and retention and finally increased business growth and citizen value.During implementation of the strategic plan, EPZA will face significant internal and external challenges which include but are not limited to globalization and high operational costs. We, however, intend to face these challenges head on and there is no doubt in my mind that having expressed our strategic intent through this document, and with the combined support and commitment I have received from the Authority’s Board, management team and staff, EPZA is indeed on the right track to sustainable growth.Finally, let me take this opportunity to thank the various stakeholders who participated and contributed to the strategic planning process. These include the Government of Kenya, a supportive Board of Directors, our customers who participated in focus groups, and finally the EPZA management team and staff who have worked tirelessly to ensure this plan is crafted and owned by all concerned. I would also like to thank KPMG Kenya for providing a team of consultants.

Mr. Cyrille W. NabutolaChief Executive OfficerExport Processing Zones Authority


GlossaryAGOA African Growth and Opportunity Act

BOD Board of Directors

CAGR Compound Annual Growth Rate

COMESA Common Market for Eastern and Southern Africa

CSR Corporate Social Responsibility

EAC East African Community

EPA Economic Partnership Agreement

EPZ Export Processing Zone

EPZA Export Processing Zone Authority

EU European Union

FDI Foreign Direct Investment

GDP Gross Domestic Product

GOK Government of Kenya

MOIED Ministry of Industrialization and Enterprise Development

MSME Micro Small and Medium Enterprises

MTP Medium Term Plan

PESTEL Political, Economic, Social, Technology, Environmental and Legal

PPP Public Private Partnerships

R&D Research and Development

SEZ Special Economic Zone

SWOT Strength, Weaknesses, Opportunities & Threats

VAT Value Added Tax

WTO World Trade Organization


1. Executive summary

Export Processing Zones Authority (EPZA) has embarked on development of a strategic plan covering the period 2014 – 2019. Key factors that will influence the current strategic direction in this period and significantly differ from the environment in which the previous plan was developed are: key changes in EPZ environment, particularly the East African Community Common Market Protocol, which has limited access to the enlarged local EAC market, devolution of government to the counties, the development of Kenya’s second Medium Term Plan (MTP II) under Vision 2030 which provides key targets for public agencies for the period; impact of Kenya’s rising per capita GDP on the application of export incentives under the Subsidies and Countervailing measures Agreement of the World Trade Organization (WTO),uncertainty over continuation of preferential market access to USA and European Union under and the African Growth and Opportunity Act (AGOA) and the Economic Partnership Agreement; and rising factor production costs and increased competition for global investment from other locations. It is against this background that the EPZA has embarked on the quest to develop this strategic plan to enable it to better define its direction as well as to guide the optimum allocation and utilization of its resources. The export sector in Kenya has experienced stable growth, with export oriented organisations tapping into key Regional African and Western markets to expand their sales. Higher than average economic growth in the region has been driven by large infrastructure projects which stimulate demand for supplies; by improved transport logistics across the East African region by an increasingly economically active population, and by the growth in the use of technology in financial and telecommunication sectors in the region. In addition, continued demand for Kenyan primary goods in Western markets has supported Kenya’s traditional exports to EU and Middle East markets, even as the USA, a newer market, imports more of Kenya’s textile products. At a national level, however, even as exports have grown, imports have grown even faster, necessitating national export strategies to quickly address the increasingly negative balance of trade. EPZA must therefore seize market opportunities, and influence positive changes in the business environment so as to contribute even more to national exports, investment, employment and GDP, hence the need to re-map EPZA’s strategic direction.This strategic plan provides a blue print against which the strategic direction of the EPZA is documented. It seeks to coordinate and integrate the activities of the various functional areas of the Authority, in order to achieve long-term organizational objectives using the Balanced Scorecard approach. The score card integrates strategy formulation with performance management. The use of the balanced scorecard will assist EPZA to align corporate goals across the organisation, communicate strategic themes, link strategy to initiatives or projects and to cascade strategic understanding and performance management to all levels within the Authority. The plan also provides a monitoring and evaluation framework to help measure achievements and redirect efforts where required.

2. Introduction & Background

Strategic planning is a vital process in modern management that guides an organization towards achieving its business goals. It is the process of formulating, implementing and evaluating cross-functional decisions that enables an organization to achieve its long-term objectives. The Strategic Plan 2014 -2019 represents the strategic direction that the Export Processing Zone


Authority intends to follow in the next five years. The plan highlights key issues facing the organization, identifies strategic themes, defines strategic result areas, strategic objectives and the strategies to follow in the implementation process, to leverage the untapped potential of the EPZ program and achieve self-sustainability for the Authority. EPZA’s directors, top management and stakeholders met in Naivasha from the 25 th to the 27th of September 2013 for a strategy workshop where a broad strategic direction for EPZA program for next five years was deliberated upon. The board and top management took full cognizance of the various challenges sweeping through the economy, to general and the manufacturing and export sector, in particular, and the need to align the EPZA’s plan to these emerging issues, to general sector reforms in Kenya and to the Vision 2030 (with special emphasis on MTP II). In formulating the current Strategic Plan 2014 -2019, important lessons have been drawn from the performance of EPZA strategic plan 2008 -2013. There have been notable achievements and challenges. Key achievements include: Establishment of the Export Business Accelerator Program: an enterprise incubator program

that focuses on improving participation of indigenously Kenyan owned, small scale enterprises (SMEs) in the EPZ program. As a result of this program, local ownership of EPZ companies has risen from 17.3% in 2010 to 25.6% in 2012.

Consistent growth in the principal performance indicators such as exports, total sales (turnover), capital investment and employment creation.

Key challenges include: The re-definition of the domestic market to include the East African Community member

states, which meant that EPZ firms will be unable to sell more than 20% of their annual production in Kenya, Uganda, Tanzania, Rwanda and Burundi, markets that have traditionally been key export markets for firms in the EPZ program.

Uncertainty of the extension of third party textile imports for companies producing garments and apparel under AGOA.

Rising production factor costs for transport, energy and labour.

External stakeholders play a key role in ensuring that EPZA achieves its strategic objectives . In particular, the importance of support received from the Ministry of Industrialization and Enterprise Development, and the National Treasury in the realization of the strategic plan cannot be underestimated and they along with other goverment departments were interviewed during the process. Interview sessions were held with key stakeholders in both the public and private sector including: Ministry of Devolution and Planning, Kenya Institute of Public Policy and Research (KIPPRA), National Economics Social Council (NESC), Kenya Investment Authority, University of Nairobi – in conjunction with National Council for Science and Technology. From the private sector, Microsoft Corporation, FOTON, (a motor company) were interviewed among others. Meetings, including a focus group session, were also held with current EPZ companies to understand the existing challenges they are facing and to understand the role the authority can play in assisting them. An extensive review of the internal and external operating environment of EPZA was undertaken to guide the crafting of the current strategy. Key external environment factors considered were political, economic, social, technological, environmental and legal factors (PESTEL). The internal environment involved analysis of the various internal performance factors and are presented in


tabular and graphical forms in the report. The mission, vision and values were reviewed and in some instances re-crafted, and a tag-line or slogan was also devised. The Customer Value proposition (CVP) was restated. The SWOT and PESTEL analysis together, provided the strategic organisational assessment, and an institutional critique based on past performance was undertaken to come up with achievements to-date, challenges and emerging issues. These were then collated into pains and enablers, which coalesced into 3 strategic themes with 16 strategic objectives. The strategic themes were developed into a strategy map explaining cause and effect relationships between key strategic objectives using four perspectives : at the foundation - learning and growth (dealing with organisational capacity or people, tools and technology); internal business processes; financial perspective and finally, at the apex the customer perspective.The strategic objectives were then developed into a five year strategy implementation plan, which incorporated strategic objectives, strategic initiatives or projects, performance measures and performance targets. For each strategic initiative, start and end dates were provided along with a budget for the 5 year period, culminating in the development of the first tier strategy implementation plan, endorsed by the Board and management.The scorecard will be cascaded to all levels of the staff in the Authority to enable proper stewarding and tracking of the performance of Authority and implementation of the Strategic PlanVarious opportunities exist for upgrading the benefits derived from the EPZ program by the national economy. The main focus in this Strategic Plan will be on measures that increase investments, improve exports, and that can lead EPZA to financial sustainability, reducing the contribution by the Exchequer to the Authority’s recurrent budget to nil, by the end of the plan periodAs a result of implementing this strategy, EPZA will tap into existing potential and emerging opportunities and play its full role as a key catalyst in GDP growth through sustainable export growth, expansion of employment and improved investment in support of national economic development goals.

History and Objectives

The Export Processing Zones Authority was established in 1990 through the Export Processing Zone Act (Cap 517), for the promotion and facilitation of export oriented investments and the development of an enabling environment for investment in the export sector. The EPZA is a state corporation, under the Ministry of Industrialisation and Enterprise Development. The principal objectives of the EPZA are: Development of all aspects of the export processing zones with particular emphasis on

provision of advice on the removal of impediments to, and creation of incentives for, export-oriented production in areas designated as export processing zones;

Regulation and administration of approved activities within the export processing zones; and Protection of government revenues and foreign currency earnings.

The structure of the authority


EPZA, being a state corporation, is governed by The State Corporations Act (Cap 446) in addition to the EPZ Act. It thus adheres to the rules and regulations stated in both acts in addition to other relevant laws. EPZA is provided with general direction by a board comprising 15 members appointed from both private and public sectors. The board is headed by a chairman from the private sector, appointed by His Excellency, the President.The day to day operations of EPZA are managed by a staff of 160 headed by the Chief Executive Officer, hereafter referred to as CEO, who is appointed by the Cabinet Secretary for the Ministry responsible for industry, on recommendation by the Board. EPZA operates from its head office located at the Athi River Export Processing Zone, and from Mombasa Regional Office at Kipevu Export Processing Zone. The CEO is charged with the direction of the affairs and transactions of EPZA, the exercise, discharge and performance of the Authority’s objectives, functions and duties, and the administration and control of the employees of the Authority. To discharge its mandate and functions effectively, the EPZ authority has been structured in four divisions and a number of departments. The divisions are: Business Development; Operations and Investor Support; Utilities and Technical Services; and Finance and Administration. In addition, the Information and Communication Technology (ICT), Human Capital, Corporate Secretary, and Procurement departments report directly to the CEO. Further, the Risk Management and Audit department which reports directly to the board. Each division is headed by a general manager and each department is headed by a manager.

Figure 1: EPZA Organ gram


Board of Directors

Chief Executive Officer

GM

Utilities & Techn Services

GM

Business Development

GM

Fin & Admin

GM

Operations & Investor Support

Corporation secretary

ICT Manager Human capital manager

Risk mgt &

Audit Manager

Procurement secretary

Source: EPZA

The EPZ Act, CAP 517 specifies the following powers, duties and functions that the Authority may exercise, perform and discharge: . To advise the minister on all aspects of development of the export processing zones; To implement the policies and programmes of the government with regard to the

development of the export processing zones; To identify and map the areas to be designated as export processing zones; To plan the development, maintenance, and to finance basic infrastructure up to the

perimeter of the export processing zones; To examine and process applications for designation of export processing zones and issue

relevant approvals; To examine and process applications for licences by the export processing zone developers,

operators, enterprises and issue the relevant licences; To promote and market export processing zones among investors; To issue certificates of origin to export processing zone enterprises for the purposes of a

generalized system of preferences and other trade preferences given under bilateral or multilateral trade agreements;

To act as a “one-stop” centre through which the export processing zone enterprises can channel all their applications for permits and facilities not handled directly by the EPZA;

To process building plans and issue relevant approvals in consultation with the ministry responsible for physical planning and other relevant authorities;

To perform all such administrative functions in relation to the designated export processing zones as would normally be performed by local authorities;

To maintain current data on the performance of the programme in each individual export processing zone and export processing zone enterprise;

To enforce within the export processing zone compliance with customs procedures and other requirements for preventing the unauthorized use of designated export processing zones and export processing enterprises;

To enforce compliance with exchange control procedures and other requirements for preventing the unauthorized use of designated export processing zones and export processing zone enterprises;

To suspend or cancel the licence of an export processing zone operator or an export processing zone enterprise or an export processing zone developer which is in the violation of the Customs and Excise Act; and

To do all such other acts as may be incidental or conducive to the attainment of the objective of the Authority or the exercise of its powers under this Act.

In order to perform the above functions the Authority uses resources partly obtained from the Exchequer in the form of a grant, and partly from Appropriations in Aid or self-generated revenues obtained from licence fees, rentals and other service fees.

The program

The EPZ program is a key economic development program of the Government of Kenya (GoK), designed to promote exports, create jobs, attract foreign direct investment (FDI), increase


consumption of local resources, and facilitate transfer of technology to local companies and workforce. The prevailing international investment environment requires that for successful attraction and retention of export oriented investment, a package of fiscal, regulatory and infrastructure incentives are provided. EPZ companies as per section 29 of the EPZ Act are therefore offered incentives in the form of various tax exemptions, exemptions from certain licences and regulatory permits. The details of incentives granted to EPZ companies are as follows:

Tax benefits: 10 year corporate income tax holiday and a 25% tax rate for a further 10 years thereafter

(except for EPZ commercial enterprises); 10 year withholding tax holiday on dividends and other remittances to non-resident parties

(except for EPZ commercial licence enterprises); Perpetual exemption from VAT and customs import duty on imported inputs – raw materials,

machinery, office equipment, certain petroleum fuel for boilers and generators, building materials, other supplies. VAT exemption also applies on local purchases of goods and services supplied by companies in the Kenyan customs territory or domestic market. Motor vehicles which do not remain within the zone, motor vehicle spares and fuels for motor vehilces, are not eligible for duty and VATexemption;

Perpetual exemption from payment of stamp duty on legal instruments; 100% investment deduction on new investment in EPZ buildings and machinery, applicable

over 20 years.

Simplified and smooth procedures and operations: Operation under a single licence issued by EPZA. EPZA seeks to minimize bureaucracy and

administrative procedures and facilitate licensing, set up and operations of EPZ companies. This includes exemption from compliance with various laws such as the Statistics Act. The Authority acts as the primary licensing and regulatory agency on behalf of the government, and collects all required information and data from the companies for further collation and reporting;

Rapid Project approval (for licensing) within 30 days ; No exchange controls – liberalised foreign exchange regime and easy repatriation of capital

and profits, access to foreign currency accounts, domestic and offshore borrowing; Onsite customs documentation and inspection by customs staff. All zones have a resident

customs office for on-site customs documentation and clearance. A senior revenue officer is attached to the EPZA management to assist in all customs related matters;

Unrestricted investment by foreigners; One-Stop-Shop service for facilitation and aftercare – EPZA’s Operations and Investor Support

assists new companies and provides help and advice in the areas of staff recruitment, labour regulations, work permits, import-export logistics, application for utility connections and registration with tax authorities.

Physical infrastructure benefits: All zones are built to exacting international standards and provide facilities suited to export

production;


Serviced land and ready factory buildings are available for sale or lease to licensed EPZ companies. Water, sewerage, electricity, all weather roads and an illuminated perimeter fence or wall are standard requirements for zones;

Zone developers provide 24 hour security, street lighting, landscaping and street cleaning services in the zones. Private garbage collection firms are retained to dispose of normal office waste; and

Office premises and industrial buildings and warehouses are available for lease in most zones.

Role of the EPZA and the EPZ Program in Kenya’s economy

From the early 1990’s, Kenya implemented a number of trade and fiscal policy reforms intended to improve economic performance including expansion of exports by manufacturing firms. The Export Development Program involved the development of various export promotion schemes including Manufacturing Under Bond and later the Export Processing Zones program.The manufacturing sector is a key productive sectors in Kenya and accounted for8.9% of GDP in 2013 The Kenyan manufacturing sector is the largest in East Africa, serving the local market and providing exports to the East African region and the world.Vision 2030, seeks to transform Kenya into an industrializing, middle income country providing a high quality of life to its citizens in a clean and secure environment, by the year 2030. The Vision is anchored on three key pillars: Economic, Social and Political. The economic pillar seeks to deliver 10% sustained growth in GDP by 2030. To do so, 7 sectors have been identified as catalysts: tourism, agriculture and agro-processing, wholesale and retail trade, manufacturing, IT enabled services and business process outsourcing, financial services and finally, oil, gas and mineral resources. Kenya’s Medium Term Plan II 2013-17 (MTPII) is the second in a series of successive 5 year medium term plans through which Vision 2030 is being implemented. For the manufacturing sector, the Vision and MTPII focus on the establishment of special economic zones in Lamu, Mombasa and Kisumu; the development of SME parks and industrial parks in each of the 47 counties in order to attract new companies, the expansion employment and attraction of FDI. They also target skills development for technical resources, value addition including to natural plant resources particularly those with high medicinal, cosmetic and nutritional value; productivity improvements and training in new technologies for home based value addition. The Ministry of Industrialisation and Enterprise Development has produced a national Industrialisation strategy document entitled: “An aspiration to attain Vision 2030”. The strategy recognises that the country must grow its GDP by between US$ 4 and 6 billion per year for 17 years to 2030, increase the manufacturing base to deliver 20% of GDP, increase FDI 5 times over the current level, create an additional 5 million jobs, and attain global top 20 ranking in ease of doing business rankings by 2020. The Ministry’s strategy is one of job creation and industrialisation built on foundations of improving the ease of doing business; supporting enablers of growth such as skills development, infrastructure provision, and access to finance; unlocking the potential of small and medium enterprises (SMEs); developing a compelling FDI attraction plan and building strong government delivery capability. The key components of the Ministry’s strategy are sector-specific and include:-


Growing critical (agro-processing) sectors where Kenya has scale – tea, coffee, flowers, horticulture

Leveraging natural advantages to create competitive sectors -textiles and cotton, leather, agro-processing, beef and fishing

Building local industries to support resource and infrastructure investments in oil, gas, mineral, infrastructure (e.g. steel) and geothermal

Transforming government industry (public sector enterprises including Pan Paper Mills, sugar factories, coffee millers, coconut and cashewnut processors, livestock processors and Pyrethrum Board of Kenya)

As a key institution in the industrial sector, the Export Processing Zones Authority, in its Strategic Plan, seeks to make a significant contribution to national economic and social objectives through industrial growth and job creation.

3. Situational Analysis

As part of the strategic planning approach, EPZA’s situational analysis answers the question “Where is EPZA today”? EPZA’s situational analysis ensures accurate understanding of EPZA’s environment as it sets out its strategic direction for the period covering 2014 – 2019. The situational analysis covers both the internal and external environments of the organization. It assists by identifying all possible strategic directions, hones in on potential opportunities and threats, while embracing global best practice and key learning points. EPZA leveraged key elements of its situational analysis in the development of its strategic direction through the strategic organisational assessment step of the balanced scorecard method.

3.1.Macroeconomic Environment

According to the Economic Report on Africa, (by Economic Commission on Africa (ECA and African Union) economic growth in Africa strengthened in 2012 to 5 per cent average despite a slowing world economy. (See figure 2). Political turmoil and tensions in North Africa began to ease, democratic elections were held and new leaders inaugurated in Egypt and Libya, and normal economic activity began to return. Africa’s medium-term growth prospects remain strong at 4.8 per cent in 2013 and 5.1 per cent in 2014.

Figure 2: GDP Growth 2008 - 2013

2008 2009 2010 2011 2012 2013

-2

-1

0

1

2

3

4

5

6

7

8

WorldDeveloping EconomiesAfrica


In the period 2003-2013, as shown in figure 3, Kenya has not experienced the same growth rates as the rest of Sub Saharan Africa. According to the World Bank, the weak economic performance is attributed to three main factors: -internal shocks, lack of natural resources, and poor economic fundamentals. Internal shocks explained the widening gap between Kenya’s growth rate and Africa’s growth rate in 2008-09 and 2011, while the other two explained Kenya’s overall underperformance.

Figure 3: Average Growth Rate in EAC and SSA 2003-2013

Burundi Kenya SSA exc ZAF Tanzania Uganda Rwanda

3.59%

4.61%

5.96%

6.91% 6.98% 6.96%

These shocks have caused some reduction in growth giving Kenya 4.6% CAGR growth over the period which is below the average for Sub-Saharan Africa (leaving out South Africa) of 5.96%, over the period 2003-13 as shown in figure 3.However, despite experiencing economic turmoil in its key export markets, the Kenyan economy achieved 2.6% growth in 2009, exceeding average growth in sub-Saharan Africa for that year. Strong macroeconomic policies and Kenya’s relatively limited integration into the global economy shielded the country from the worst effects of the global economic downturn, apart from a steep decline in private capital flows, and subdued exports and tourism receipts. Despite the economic shocks, the Kenyan economy has shown and continues to show resilience and is steadily recovering with real GDP growing at 4.2% in 2012 and 4.7% in 2013. Investments in infrastructure including roads, rail, airport expansion; increases in power supply and improved access to water all support this growth. At the same time, the Kenya government is keen on undertaking comprehensive structural reforms aimed at improving the investment climate.

Table 1: Kenya’s key macroeconomic indicatorsIndicator 201

22013 2014f 2015f 2016f 2017f 2018f

Nominal GDP, US$bn 41.3 45.3 50.6 56.2 62.5 69.5 77.0

GDP per Capita, US$ 955 1,021 1,111 1,201 1,303 1,413 1,528

Real GDP Growth, % change y-o-y 4.6 5.6 6.1 6.2 6.2 6.1 5.8

Good and Services Exports, US$bn 11.1 12.3 13.6 14.9 16.4 18.0 19.7

Good and Services Imports, US$bn 18.2 19.9 21.2 22.8 24.5 26.3 28.3


Source: Kenya National Bureau of Statistics, World Bank, Central Bank of Kenya, BMI; f– forecasted

The EPZA has developed its 2014 – 2019 strategic plan taking into consideration the national strategic direction and allowing for alignment with the MTPII objectives and with the National Industrialisation Strategy. The situational analysis looks at PESTEL factors which could influence the achievement of EPZA’s strategic results. Those which result from the macroeconomic environment (E) are: Rising factor costs (energy, transport, labour, industrial land), Stable macrooeconomic environment – relatively stable shilling Discovery of mineral, oil and gas resources which can reduce energy costs, assist with

balance of payments deficits and support development of basic basic industries e.g. Steel, High rate of growth in regional markets to provide demand for exported goods Slow but sure recovery in key Northern markets in USA and EU High growth rates in Asia, fast rising incomes resulting becoming as potential markets for

EPZ investment and for EPZ products High growth rates in Africa Large infrastructure projects which will ease doing business and which are a potential market

for basic constuction supplies – Standard Gauge Railway, Expansion of Jomo Kenyatta Airport, Lamu Port, LAPSSET Corridor, Olkaria Geothermal projects, KonzaTechnology City, Ethiopia-Kenya high voltage power connection lines, Special Economic Zone/Free Trade Zone in Mombasa, expansion of trunk roads, urban commuter rail projects,

Persistence of high interest rates for Kenya shilling based loans to productive sector Liberalised financial markets making foreign currency loans available for export sector High cost of devolution and impact of national budget deficit Widening Trade deficit with high growth in imports

3.2.Political environment

The political environment of an organisation includes government policy, and the legal and regulatory framework affecting the organization, and thus represents key opportunities or threats for the organization. Changes in policy, new or amended legislation/regulations, political actions and other activities can affect organizations both positively and negatively. Increasing global interdependence among economies, markets, governments and organizations makes it essential that organizations consider the impact of political variables on the formulation and implementation of strategy. Key issues and trends in the Kenyan political environment include: Continued political stablity and national cohesion in an enlarging democratic space, The implementation of the new constitution, e.g. devolution to county governments and

dispersal of some functions of national government; Security challenges arising from terrorism; Ethics and governance challenges; New focus on economic diplomacy and enhancment of relations with potential markets Enhanced national planning frameworks such as the Kenya’s Vision 2030 and the MTPIIEPZ firms have been affected by each of the factors mentioned above. The peaceful elections of 2013 raised investor confidence while the new constitution and the devolved system of government offer diverse opportunities for investors throughout the country.


3.3.Social Environment

Any change in the social environment of an organisation has a major impact upon virtually all product and service markets, and on consumers. The social environment includes social, cultural, demographic and environmental variables. Some of the key issues identified in the social environment include: Shifting labour force demographics including changing career attitudes; Growing middle class in the Eastern and Central Africa region with increasing purchasing

power; Growing mismatch between the skills employers need and the talent available in some key

economic sectors; Talent market becoming increasingly global and more mobile; Employees gaining more bargaining power, requiring better industrial relations management; Changing attitude towards authority figures in population, requiring more participatory

management in various industries Rising urbanization; Increased costs of living due to internal and external price shocks reducing purchasing power

for the lowest paid, requiring novel ways to manage employee motivation and productivity in key industries;

Changing consumption patterns in major markets, with more affluent consumers placing premium on products produced in an environmentally sustainable and socially responsible manner;

Changes in land use patterns e.g. conversion of previously arid lands to fertile farmland through irrigation and increasing settlement of nomadic communities

Increased participation of women inthe work force & heightened focus on gender equality

3.4.Technological Environment

Technological forces represent major opportunities and threats that must be considered in formulating strategies. Technological advancements affect an organization’s products, services, marketing practices and competitive position. They can create new markets, result in proliferation of new and improved products, and change the relative competitive cost position. Revolutionary technological changes and discoveries such as mobile telephony and wireless communication, computer technology, augmented reality cloud computing, digital imaging, fibre optics, Electronic Funds Transfer (EFT) are all having a dramatic effects on organizations.Technology is changing rapidly as the industry aims to achieve efficiency and drive down costs. Advances in technology can have a major impact on business success, with companies that fail to keep up often going out of business. Technological change also affects political and economic aspects and influence how organisations compete in the marketplace. The key technological issues and trends that may affect the EPZ sector include: Use of Social Media for communication with markets and with staff Digital Consumerism – more products being promoted and delivered through digital media Wide network of Fibre optic cable for broadband communication in key towns Low cost of mobile telephony and Internet Access High level of innovation in mobile phone applications Embracing E-commerce and the internet in key business processes; Adoption of new technology for increased food production such as greenhouse production;


Emerging economies as sources of technology and innovation (e.g.Korea, China, India,Israel) Biotechnology as a source of cheaper bio-fuels, pharmaceuticals, foods and chemicals, Decreasing costs of technology for exploitation of renewable energy e.g. wind, solar and

geothrmal; 3D printing (additive manufacturing)-for both prototyping and distributed manufacturing with

applications in architecture, engineering, construction (AEC), industrial design and automation. Innovative industry software- manufacturing software and simulation software shortening both

product and production lifecycles Efficient, clean production technology available

3.5.Environmental Factors (Ecology)

The key issues affecting the physical environment include: Lack of adequate urban planning with industries closing in on residential ares, and lacking

proper water supply and waste disposal facilities Deforestation in key water catchment areas reducing rainfall and affecting rain fed crop

production High levels of air and water pollution in urban areas Global warming affecting rainfall and temperature patterns Clean energy and clean technology as emerging as a source of competitive advantage BASEL Convention limiting global trade in environmentally sensitive products Governments and companies securing valuable raw materials to sustain their supply chains; Customers requiring organizations to be more transparent about their sustainability practices; Global trading in carbon credits and carbon dioxide emissions Increasing but still inadequate enforcement of local environmental regulations by NEMA Promotion of reuse, reduce and recyclemethods to better manage domestic & industrial waste.

3.6.Legal and Policy Environment

The Constitution of Kenya (2010) provides several tiers for law making – at national level by the National Assembly and the Senate; and at county level by the respective county assemblies. These laws are implemented by the Executive at national and county levels. The new dispensation thus has heightened complexity in the legislative and in executive functions particularly as they relate to the policy environment for investment and business. A number of key local, regional and international policies and laws have an impact on EPZA and the EPZ program. These include:

The EPZ Act

The Export Processing Zones Authority (EPZA) is a state corporation established by the Government of Kenya through an Act of Parliament – the Export Processing Zones Act (Cap 517 of the Laws of Kenya) for the promotion and facilitation of export-oriented investment and for the development of an enabling environment for such investments. The act has undergone a number of changes over the years that have watered down the incentives for EPZ firms and increased the administrative burden of compliance. Changes in EPZ legislation through various Finance Bills introduced the following amendments: Exclusion of commercial activities from the income tax holidays and disallowing parallel

commercial and manufacturing activities by a single enterprise;


Disallowing any local sales by EPZ commercial enterprises Commercial EPZ activities being licensed only after consultation with the Commissioner

General, Kenya Revenue Authority; Imposition of mandatory 2.5% duty surcharge on EPZ goods sold to the domestic market as

well as the requirement that these sales be subject to approval by the minister (Cabinet Secretary) responsible for Industry; and

Introduction of a claim system for previously duty exempt petroleum fuels for EPZ firms. These changes have resulted in a gradual erosion of the incentives that were offered under the EPZ program.

Special Economic Zone Bill

The Special Economic Zone policy was developed by the government to promote desirable economic activities in areas demarcated as Special Economic Zones. The policy proposed a wider range of activities than those provided in the EPZ Act, and provided for different SEZ schemes with a commensurate policy framework to support those schemes; and greater access to local and regional markets. The policy also proposed to repeal the Export Processing Zones Act and replace it with the Special Economic Zones Act with the transformation of EPZ program into Special Economic Zones program.

Regional Industrialization policy & legislation

Local and regional policies and laws such as the Kenya Industrialization policy already described above, and the EAC Industrialization Policy focus on addressing the challenges by industries in the region. Regional policy also focuses on opening the region’s markets to partner states. Relevant aspects of legislation the East African Community that will promote EPZ firms include commitments to support: Enhanced capacity to design industrial policy and to formulate, implement and monitor such

policy at national and regional levels; Diversification of the manufacturing base and raising local value added content (LVAC) of

manufactured exports to at least 40% by 2032 from the currently estimated value of 8.62%; Measures insituted to increase export of locally manufactured goods Strengthening of R&D, technology and innovation capabilities to support structural

transformation of the manufacturing sector; Enhanced product (manufacturing) quality and certification leading to product conformity to

regional and international standards; andThe guiding principles and core values of Kenya’s national industrialization policy include: productivity and competitiveness, market development, high value addition and diversification, regional dispersion; technology and innovation, fair trade practices, growth and graduation of MSMEs; employment creation, environmental sustainability, compliance with the new constitution, education and manpower development. The policy’s goals include: Strengthening local production capacity; Raising the share of Kenyan products in the regional market; Developing niche products; Increasing the share of Foreign Direct Investment in the industrial sector; Increasing the share of locally produced industrial components; Establishing an Industrial Development Fund; and


Increase the local content of locally manufactured goods for export.

Protocol on the establishment of the East Africa Community Customs Union

The establishment of the EAC Customs Union and later on the Common Market, are governed by this Protocol. The Protocol on the establishment of the Customs Union placed a 20% limit on sales by of EPZ and other export promotion schemes vide Article 25 of the Protocol. This means that when the Single Customs Territory provisions are fully implemented, EPZ firms may sell only 20% of annual production to the new local market consisting of 5 partner states. This has effectively shrunk the local or regional market for EPZ firms, making establishment in Kenya for regional sales, unattractive. A number of Kenyan firms have closed down or are closing down as a result.

AGOA

The apparel sector contributes more than 50% of exports and generates close to 80% of employment within the zone. The current extension of the “third country fabric provision” which is to expire in September 2015, requiring Kenya to lobby for further renewal of the extension for the benefit of Kenya’s apparel exporters to the USA under the African Growth and Opportunity Act (AGOA).At the same time in order to meet the raw material requirements of textile manufacturers and to ensure sustainability of the apparel export program, the country will need to fast track the adequate supply of fabric from within the regional marketKenya’s traditional export trade partners are primarily the UK, Netherlands, Uganda, Tanzania, United States and Pakistan. Kenya’s main exports are tea, fresh cut flowers, refined petroleum oils, unroasted coffee and legumes. The Export Processing Zone contributed 8.84 percent of national exports in 2013The bulk of these exports are of textile and apparels and the U. S. is the main destination. The EPZ program is highly dependent on AGOA which opened up the US market to goods from eligible Sub-Saharan African countries eligible to participate under an enhanced Generalised Systems of Preference (GSP) program. During 2013, 56.4 % of all exports were consigned to USA market out of which 96.6% constituted exports of garment products. Europe accounted for 13.6 % (Ksh 6,046 million) of the export market, EAC 3.6% (Ksh 1,590 million), Asia 7.0 % (Ksh 3,103 million), and COMESA 8.7 %( Ksh 3,884 million), Rest of Africa 5.3 %( Ksh 2,337 million), Far East 0.8 %( Ksh 365 million) and 0.7% (Ksh 308 million) was destined to the rest of the world. During the previous year, Europe accounted for 18.9% (Ksh 7,548 million), EAC 7.7% (Ksh 3,057 million), Asia 5.9% (Ksh 2,352 million), COMESA 5.1% (Ksh 2,029 million), Rest of Africa 7.3% (Ksh 2,899 million), Far East 0.6% (Ksh 243 million) and 0.1 % (Ksh 34 million) to the rest of the world.

Figure 4: Export Destinations for Kenya and EPZ Program (2012 / 2013)


European Union23%

COMESA36%

Other countries

1%

Rest of Europe

4%

USA5%

Middle East12%

Far East & Australia

6%

Rest of Africa13%

Kenya Export Destinations 2012

Below is a comparison of Kenya’s top ten exports and the top ten export products under the EPZ program.

Table 2: Top 10 export products for Kenya and the EPZ Program 2013Top 10 Kenya Exports Top 10 EPZA Exports

1 Tea Garments2 Horticulture Agro-Processing3 Apparel Minerals / Metals / Gemstones4 Coffee Services5 Iron and Steel Relief Supplies6 Tobacco products Electricals7 Essential Oils Dart-Boards8 Articles of Plastics Printed items9 Soda Ash Plastic goods10 Leather Pharmaceuticals

A majority of the exports, especially to the European Union are of unprocessed goods, such as flowers or tea and coffee. It is apparent that EPZ firms are engaged in non-traditional exports of value added goods, including clothing which is Kenya’s third largest merchandise export. The potential for expanded investment and exports by the EPZ sector, particularly in textile fabric and accessory production, in agro-processing value addition and export of services is immense. In particular: Exports of non processed goods- key exports such as tea and coffee and flowers are exported

to the EU unprocessed. EPZA will need to support firms that can add value to these products under the EPZ program,

There is a captive market for high quality, moderate cost, textile fabrics to supply the existing export oriented apparel sector which buys over US$ 200 million worth of fabric and accesories from Asia every year.


The potential market presented by the Economic Partnership Agreement between EAC including Kenya and the 28-nation EU region is immense and has not been fully exploited. Duty free access to apparel goods made in Kenya is granted under the EPA, even for clothing made out of fabric sourced outside African Caribbean and Pacific countries and outside EU states. The EPA trade agreement is expected to be concluded during the strategic plan period.

The range of products allowed preferential market entry the US under AGOA exceeds 6,000 or which only a few have been exported from Kenya

3.7.Competitors

As shown above, Kenya’s key markets are regional countries like Uganda and Tanzania, the European Union and the US under AGOA. Key competitors for the Kenya EPZ program under AGOA are Lesotho and Mauritius. Emerging competitors include Ethiopia which is aggressively attracting textile value chain investment and Madagascar which has recently replaced Swaziland as an AGOA-eligible exporter to the USA market. Cumulative figures indicate that in 2013 Kenya surpassed Lesotho in units sold to the USA and has emerged as the largest textile exporter under AGOA. In August 2012, legislation was enacted to extend AGOA’s important third country fabric provision to 2015. Thirty-nine Sub-Saharan African countries currently qualify for AGOA benefits. Overall regional trade under AGOA also increased significantly in 2011 and 2012. Statistics for key Kenyan competitors are listed below: Kenya:Kenya was the United States' 92nd largest supplier of goods imports in 2013. U.S.

goods imports from Kenya totaled $451 million in 2013, a 15.7% increase ($61 million) from 2012, and up 81% from 2003. The five largest import categories in 2013 were: Knit Apparel ($160 million), Woven Apparel ($148 million), Spices, Coffee, and Tea (coffee) ($39 million), Edible Fruit and Nuts (macadamia nuts) ($29 million), and Electrical Machinery ($22 million). U.S. imports of agricultural products from Kenya totaled $90 million in 2013. Leading categories include: coffee (unroasted) ($33 million), and tree nuts ($30 million). Nuts ($31 million).

Lesotho: Lesotho was the United States' 101st largest supplier of goods imports in 2013. U.S. goods imports from Lesotho totaled $359 million in 2013, a 15.6% increase from 2012. The top import categories (2-digit HS) for 2013 were: Knit Apparel ($211 million) and Woven Apparel ($110 million). These two categories represented 90% of total imports from Lesotho. The U.S. goods trade deficit with Lesotho was $359 million in 2013, a 21.8% increase from 2012.

Swaziland was the United States' 136th largest supplier of goods imports in 2013. U.S. goods imports from Swaziland totaled $59 million in 2013, an 11.6% decrease from 2012. The top import categories (2-digit HS) for 2013 were: Knit Apparel ($30 million), Woven Apparel ($20 million), and Prep Vegetables/Fruit ($5 million). The U.S. goods trade deficit with Swaziland was $36 million in 2013, 35.8% more than in 2012.However Swazilands status has been withdrawn effective January 1st 2015.

Mauritius:Mauritius was the United States' 102nd largest supplier of goods imports in 2013.U.S. goods imports from Mauritius totaled $339 million in 2013, a 30.1% increase ($78 million) from 2012. The five largest import categories in 2013 were: Woven Apparel ($171 million), Precious Stones (diamonds) ($71 million), Prepared Meat and Fish (tuna) ($43 million), Knit Apparel ($20 million), and Live Animals ($8 million). U.S. agricultural imports in 2013 from Mauritius were $7 million.


Madagascar:Madagascar was the United States' 112th largest supplier of goods imports in 2013.U.S. goods imports from Madagascar totaled $180 million in 2013, a 63.6% increase from 2012.The top import categories for 2013 were: Nickel ($50 million), Coffee ($50 million), Special Classification Provisions ($18 million).The U.S. goods trade deficit with Madagascar was $116million in 2013, a 153.8% increase from 2012.Madagascar is a low cost,high productivity centre of apparel production, and before the US Government removed Madagascar from the list of eligible countries in 2009 following a coup, Madagascar was a major exporter to the USA, in some years beingsecond only to Lesotho. Much of the apparel related investment came from producers in Mauritius looking for a lower cost location. Madagascar status has since been reinstated after successful election in 2013.

Ethiopia: Ethiopia is currently the United States 101st largest trading goods partner with with $872 million in total (two way) goods trade during 2013. Goods exports totaled $678 million. The U.S. goods trade surplus with Ethiopia was $485 million. Ethiopia was the United States' 111th largest supplier of goods imports in 2013. U.S. goods imports from Ethiopia totaled $194 million in 2013, a 5.7% increase ($10 million) from 2012.The five largest import categories in 2013 were: Spices, Coffee and Tea (coffee) ($80 million), Special Other (returns) ($52 million), Miscellaneous Grain, Seed, and Fruit (nigerseeds) ($22 million), Footwear ($19 million), and Knit Apparel ($8 million).U.S. imports of agricultural products from Ethiopia totaled $107 million in 2013. Leading category include: coffee (unroasted) ($80 million).

Table 3: African Exports under AGOA in $ Millions 2013Kenya Lesotho

2013Swaziland Madagascar Mauritius Ethiopia

Rank 92 101 136 112 102Total goods Millions 451 359 59 180Knit Apparel 160 211 30 20 8Woven Apparel 148 110 20 171Electric Machinery 22Precious Stones 71Agricultural Imports 90Prepared Meat & Fish (Tuna)

43

Live Animals (primates)

8

Spices. Coffee & Tea 39 50 80Edible fruits and nuts

29

Prepared vegetable / Fruits

5

Special Other 52Miscellaneous grain, seed, fruit

22

Footwear 19

Kenya is involved in the export of 7 out of 19 of the products exported under AGOA by its key competitors under the AGOA program. A business case can be made for the inclusion of the remaining 12 products under the EPZ program. However with the preferential access under AGOA


set to come up for extension in 2015, EPZA should lobby to ensure that access is further extended, while at the same time supporting diversification of investment to other sectors and expand exports to other markets, while putting in place measures to ensure backward integration of the textile value chain with enhanced fabric production and increased production of ginned cotton.Another key trend in the global trading landscape is the proliferation of bilateral and regional trade agreements including the proposal to establish a Tripartite Free Trade Area between the member states of COMESA, EAC and SADC. The simultaneous pursuit of regional integration and economic zone development presents potential synergies to be exploited by partner states. Special economic zones and EPZs can be used to promote regional industrialization and to facilitate regional economies of scale in production and integration and promotion of regional value chains sourcing local products for global export. However, the rules should be careful not to exclude originating EPZ or SEZ goods from accessing the expanded regional market. New zones in the region should focus not only on access to major ports but should also benefit from proximity to designated transport corridors and from the major infrastructure initiatives along the North – South Transport Corridor linking Southern Africa to North Africa through Eastern Africa, and Egypt.

3.8.Microeconomic Environment

3.8.1. Stakeholder Analysis

Numerous stakeholder interviews were held in the course of formulating the strategy, with interviews being geared towards capturing views and opinions of the key institutions and individuals with whom EPZA interacts, with the aim of understanding EPZA’s operating environment. The broad category of stakeholders included customers (EPZA firms), policy makers, and potential customers among others. The management team and the board members were also interviewed. The key areas focused on during the interviews included: Clarification of EPZA’s mandate(s); Areas of support and collaboration with EPZA; Role of EPZA in manufacturing sector & in Kenya’s industrialization ; Identifying internal strengths which EPZA can build on; Identifying internal weaknesses which need mitigation and solutions; Identifying opportunities that EPZA can seize; Identifying threats and challenges that may inhibit EPZA in achieving its mandates; Quality of products and services; price competitiveness and potential competitors; Areas of improvement and recommendations; and Potential EPZA “to-be” core and complementary products and potential customers. The key outcomes of the stakeholder analysis identified as influencing EPZA’s strategic direction were the need to: Establish viable sources of income generation, other than the Government of Kenya; Facilitate access to regional markets; Develop a new marketing and communication strategy; Develop or support development of infrastructural facilities for the EPZ enterprises such as

provision of serviced land, facilitation of transport facilities and cheaper sources of raw materials & energy;


Embrace technology in EPZA’s operations; Diversify EPZ export markets, investment sectors ; and Establish a true one stop shop.

3.8.2. SWOT Analysis

Following interviews with key stakeholders, the SWOT analysis was developed. The strengths and weaknesses are directly related to EPZA’s internal environment and the opportunities and threats are related to the external environment. This section highlights EPZA & EPZ program strengths, weaknesses, opportunities, and threats.

Table 4: EPZA and EPZ Program SWOT AnalysisEPZA & EPZ Program SWOT

Strengths Empowering legal Instrument – powerful EPZ Act; Well qualified staff, capable, exposed and experienced in operating an

export promotion program; Diverse constitution of EPZA board; Supportive and involved EPZA board; Presence of strategic partnerships; Advantaged position to support SEZs; EPZ program incentives anchored in law; Infrastructure and land available as source of income generation and for

investment facilitation; Historically, adequate Government policy support; and Good track record/experience in certain markets, particularly in agro-

processing and textiles.Weaknesses Lack of an effective marketing strategy;

Inadequate focus on research and development initiatives; Inefficient business processes; Inadequate IT systems to enhance business processes esp.

documentation, process flow management; Lack of adequate specialised skills and “young blood” amongst the EPZA

employees; Decreased ability to influence policy changes which negatively impacts

the program; Disconnected from business and policy nerve centres due to distance

(location); Poor public image and low awareness of EPZA and its role; Financial challenges – high level of debt owed to authority, leading to

cash flow problems; Internal staffing challenges, sub-optimal establishment, restructuring,

need for increased team work; Staff de-motivated due to stagnant career development; Absence of a One Stop Shop (OSS); and Insufficient funding for key activities such as marketing.

Opportunities Renewed interest in Kenya as an investment destination due to positive political climate;


Presence of willing partners such as KenInvest to create an effective one stop shop;

Consitutional reforms through introduction of county governments; Continuation of AGOA Market access to 2015 and possibility of extension

and permanence; Special Economic Zones Bill becoming an Act; Presence of skilled human capital in Kenya’s economy; Discovery of new resources and investments opportunities in Kenya e.g.

oil, gas and water; Stabilization of Somaliland and South Sudan hence increased markets

for Kenya’s exports; Rising labour costs and pollution in China - great interest in Africa as last

investment frontier; Improvements in public infrastructure and large capital projects; Improvements in cost of doing business – port clearance, transit time; Clear roadmap for EPZ/SEZ related projects stated in Kenya’s Vision

2030; Emergence of Kenya as Africa innovation capital; Dismantling of incentive regimes such as the Tax Remission for Export

Office (TREO) and expansion of export activities required to pay VAT in the domestic market.

Threats Kenya’s rising GNP per capita that could potentially raise issues with the WTO concerning the export incentives offered in Kenya’s EPZ program;

Possibility of the EAC-type local market definition and market access restrictions for EPZ goods in the COMESA region;

Competition from other SEZ/EPZ/non-EPZ locations including Ethiopia, Tanzania, Uganda, Egypt , Vietnam, as destinations for investment;

Rising insecurity concerns in Kenya and the region, including terrorisim; Kenya poor rating in the ease of doing business; Rise in the cost doing business in Kenya; Global economic crisis negatively affecting FDI; Perception of high levels of corruption; Reduction in funding by GOK. Uncertainty over extension of AGOA third country fabric sourcing beyong

2015, Uncertainty over completion of EU-EAC EPA negotiations where other

competing Eastern African Countries already have “Everything but Arms” status in trade with EU

3.8.3. Financial Performance Overview

Financial performance is reflected in the organization’s return on assets, and return on investment value added. Three key indicators in EPZA’s financial performance have been analysed which include, Income, expenses, and infrastructure performance.


3.8.3.1. Income EPZA’s income consists of income from various sources such as operating income, investment income and other income. Government grants to EPZA for recurrent expenditure, have been on the decline and as per new guidelines, all state agencies should achieve financial sustainability to reduce the burden on the exchequer. EPZA currently relies partially on government to maintain its routine operations and to fund recurrent expenditure and development.

The rising and falling trend in income during period 2008/09 to 2012/13 could be attributed to: a consistent increase in income through complimentary products such as income from rental and water & sewerage services, and a decrease due to cuts in government grants and the adverse impact of the global financial crisis experienced by USA in 2009/10 and by the European Union in 2012/13.

Figure 5: EPZA Income (2008/2009 –2012/2013)

2008/09 2009/10 2010/11 2011/12 2012/130

50

100

150

200

250

300

350

400

KSh,

mill

ion

As shown in figure 6, for the period 2008/09 to 2012/13, the highest income generating product for EPZA is the water and sewerage services that are offered to EPZ firms as well as businesses and private consumers in the Athi River area. It is important to note that complementary products (rental, lease and water &sewerage services) contribute a higher share to the total EPZA revenue bucket than the core products (licenses).


Figure 6: Income per Product (2008/2009-2012/2013)

2008-09 2009-10 2010-11 2011-12 2012-130

10

20

30

40

50

60

70

80

90

KSh,

mill

ion

3.8.3.1. ExpensesEPZA expenses have increased by an average of 3% CAGR for the review period with overall growth being 15.95 % for the period. The increase in expenditure was for administrative and in other operating expenses with a 14% and 21% increase respectively over the entire period. Maintenance expenses decreased by 26.8% in 2012/13 compared to 2011/12.

Figure 7: EPZA Expenses (2008/2009 – 2012/2013)

2008-09 2009-10 2010-11 2011-12 2012-130

50

100

150

200

250

300

350

400

KSh,

mill

ion

3.8.3.2. Infrastructure

Infrastructure for the EPZ program as manifested by gazetted zones has been increasing consistently for the period covering 2008 to 2013 as highlighted in figure 8 due to increased


business development initiatives accompanied by positive trends recorded in Kenyan economy. By December 2013, there were 50 designated zones, up from 47 in 2012 up from 38 in 2008.

Figure 8: EPZ Gazetted Zones (2008 – 2013)

2008 2009 2010 2011 2012 20130

10

20

30

40

50G

azett

ed Z

ones

(no.

)

Figure 9: Geographical distribution of Zones by county, 2013

Mombasa; 21

Nairobi; 8

Kilifi; 6

Machakos; 4

Kiambu; 2

Kajiado; 1

Taita Taveta; 1

Murang'a; 1

Elgeyo Marakwet; 1Uasin Gishu; 1 Laikipia; 1

Nandi; 1Meru; 1 Bomet; 1

3.8.3.3. Investor Attraction and Retention

The total number of EPZ enterprises has been relatively steady despite a considerable number of projects being approved and licensed. This can be attributed to consistent attrition of enterprises from export processing zones due to following reasons: Some licenced enterprises not becoming operational in the defined timeframe “Wait and see” attitude of investors before the 2013 general elections


Lack of facilitating customs procedures for some key activities such as film production liaison services

Enterprises opting out of EPZ program after tax holiday period is over Introduction of new restrictions in sales fo EAC domestic market where EPZ enterprises are

not allowed to sell more than 20% of their production to the entire EAC market Increased cost of operation in Kenya compared with other East African countries such as

Ethiopia, who offer better infrastructure and reduced cost of operation (cheaper electricity and land) to attract investors

Figure 10: EPZ Investor Attraction and Retention (2008 – 2013)

3.8.4. EPZ Program Performance Overview

2008 2009 2010 2011 2012 20130

50

100

150

200

250

300

3.8.4.1. Employment

Expansion of employment in EPZ sector fell below targets for strategic plan period 2008-2013. However some significant increase in employment has been witnessed in 2012 and 2013 (see figure 11).The lower than expected employment may be attributed to some attrition of enterprises in the textile industry which has been the biggest EPZ employment contributor, due to uncertainties about market access to USA, increasing operating costs and concerns about lack of textile factories to supply “just in time” fabrics .However, the remaining garment producers have expanded greatly. Moreover, the count of expatriates employed under EPZ program has also reduced, due to challenges in obtaining work permits.


Figure 11: EPZ Program Employment (2008 – 2013)

2008 2009 2010 2011 2012 20130

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Empl

oyee

s

3.8.4.2. Trade Balance

EPZ exports grew sharply in year 2011 as highlighted in figure 12. However, EPZ program trade balance remained relatively stable showing high dependence on raw material imports. In the textile and apparel sector, the largest contributor to the EPZ program, and as alluded to in the previous section, only 17% of total raw materials consumed are procured from local sources, hence a strong correlation between export and import values. The decrease in 2009 is attributed to the dependence of the program on the US market, and hence the effect of the 2009 financial crisise3 in the US, a key importer of Kenya’s export products, particularly through the AGOA program.

Figure 12: EPZ Program Trade Balance (2008 – 2013)

2008 2009 2010 2011 2012 20130

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

KSh,

mill

ion

3.8.4.3. Contribution to Total Export, Employment and GDP


The EPZ program’s contribution to Kenya’s total exports and the GDP dropped in 2009 but has consistently improved in following years. The marginal decrease in EPZ contribution to Kenya’s national employment is attributed to the increasing cost of employment in the country and exodus of some textile & apparel sector companies. EPZ contribution to GDP had risen from 1.13% in 009 to 1.39% in 2011, dropping to 1.32% in 2013.

Table 5: Contribution to Total Export, Employment and GDP (2008 – 2013) Indicator 2009 2010 2011 2012 2013

(rebased)EPZ contribution to total Kenya exports (%) 6.94 7.08 7.64 7.72 8.84

EPZ contribution to total national employment (%)

0.29 0.29 0.28 0.28 0.30

EPZ contribution to GDP; constant prices (%)

1.13 1.26 1.39 1.30 1.32

3.8.4.4. Exports by sector

The garments, agro-processing and services sectors have consistently been the top 3 highest export contributing sectors for the period covering 2008 to 2013 as highlighted in Table 6. The success of the garments sector in EPZ has primarily been driven by the AGOA program and the incentives offered to the garments industry. For the EPZs, agro-processing exports have increased from 8.3% of total EPZ exports to in 2008 to 17% in 2013 while apparel has increased marginally from 56.9% in 2008 to 59.4% in 2013. The EPZ agro-processing sector has successfully diversified and expanded to European markets decreasing dependence on the AGOA program. Agricultural products have always been central to Kenya's export trade with horticulture and tea being the most important merchandise exports. The service sector across the world is the fastest growing contributor to the world economy accounting for nearly 20% of the world global trade. Though traditionally Kenya’s export base is mainly from primary agricultural products, steady growth in service industry in Kenya has seen service sector contributing close to 60% to country’s GDP, showing potential for growth in future.

Table 6: Exports by sector (2008 – 2013)

Sectors Exports per sector – percentage contribution

2008 2009 2010 2011 2012 2013

Agro processing 8.3% 11.6% 13.7% 13.1% 15.9% 17.00%

Beverage / spirits 0.3% 0.7% 1.0% 0.9% 0.9% 0.59%

Chemicals 7.6% 1.0% 0.0% 0.0% 0.1% 0.12%


Dartboard 1.7% 2.1% 1.7% 1.3% 1.5% 1.66%

Electricals 4.7% 4.5% 2.5% 4.2% 6.9% 1.86%

Food processing 1.8% 1.8% 1.1% 0.7% 1.0% 0.76%

Garments 56.9% 53.1% 56.2% 54.6% 53.1% 59.40%

Garments support services 0.0% 0.0% 0.0% 0.1% 0.0% 0.00%

Minerals/metals/gemstones 0.0% 0.0% 2.5% 9.7% 8.2% 6.65%

Pharmaceuticals & medical supplies

2.0% 0.7% 1.1% 1.1% 1.0% 0.97%

Plastics 0.9% 0.3% 0.9% 0.8% 1.0% 1.47%

Printing 7.5% 7.2% 3.0% 3.0% 1.5% 1.54%

Relief supplies 1.6% 2.8% 3.0% 1.7% 2.5% 2.08%

Services 6.2% 13.6% 12.8% 8.6% 6.4% 5.90%

Spinning 0.4% 0.4% 0.5% 0.2% 0.0% 0.00%

Other inc. Commercial crafts 0.1% 0.2% 0.1% 0.1% 0.0% 0.60%

Total exports in Ksh millions 28,094.4 23,989.6 28,998.0 39,067.0 39,962.8 44,427.1

During 2013, 56.4% (Ksh 25,056 million) of all exports were consigned to USA market out of which 96.8% (Ksh 24,246 million) constituted exports of garment products. During 2012, 52.4 % (Ksh 20,935million) of all exports were consigned to USA market out of which 96.6% (Ksh 20,217 million) constituted exports of garment products. In the year 2011, 54.7% (Ksh 21,371 million) was exported to US out of which 98.0% was garment exports. The highest growth sectors were minerals/ metals / gemstones and agro- processing with contribution growth rates of 8.17% and 7.53% respectively. The most fluctuation was seen in the services sector which grew from a contribution of 6.2 in 2008 to 13.57 in 2009 and back down to 6.38% in 2012. In the same period the chemical, printing and spinning sectors dropped from a contribution of 7.56% to less than 1% in the same period.

3.8.4.5. Investment by sector

The garments, services and agro-processing sectors have consistently been the highest investment attracting sectors for the period covering the 2008 to 2013 as highlighted in table 7 below. Mineral/metals/gemstones firms have recently increased their investment. However


average investments have declined significantly in the garments sector. This has primarily been driven by uncertainly over third party raw material restrictions under AGOA and the long term viability of Kenya’s participation in the program.

Table 7: Investments by sector (2008 – 2013)

Sectors Investments by sector – percentage contribution

2008 2009 2010 2011 2012 2013

Agro processing 8.2% 9.5% 9.8% 13.4% 16.1% 16.80%

Beverage/ spirits 1.0% 1.0% 0.9% 0.9% 0.6% 0.51%

Chemicals 9.5% 13.3% 0.0% 0.0% 2.9% 2.36%

Dartboard 3.0% 3.0% 3.0% 2.7% 1.8% 1.48%

Electricals 0.6% 0.5% 2.2% 1.8% 1.2% 0.99%

Food processing 9.0% 12.0% 11.4% 10.6% 5.6% 3.45%

Garments 34.9% 26.0% 29.5% 28.0% 27.9% 28.05%

Garments support services 0.9% 0.9% 0.3% 0.3% 0.2% 0.15%

Minerals/metals/gemstones 0.0% 0.0% 4.9% 4.5% 20.3% 20.20%


7.8% 1.7% 6.4% 8.1% 2.7% 7.75%

Plastics 0.5% 1.3% 2.7% 2.8% 3.1% 2.63%

Printing 10.0% 8.9% 9.3% 8.8% 6.2% 5.64%

Relief supplies 0.2% 0.4% 0.5% 2.0% 1.4% 1.08%

Services 8.4% 14.5% 13.0% 10.4% 10.0% 8.79%

Spinning 5.4% 6.3% 6.2% 5.7% 0.0% 0.00%

Other inc. Commercial crafts 0.7% 0.6% 0.1% 0.1% 0.0% 0.03%

Total investments in Ksh millions

21,700.6 21,506.8 23,563.0 26,468.3 38,534.6 48,004.5


3.8.4.6. Employment by sector – Local jobs

The garments, agro processing and services sectors have consistently been the top 3 highest employment sectors for the period covering the 2008 to 2013 as highlighted in table 8 below. This has primarily been driven by the fact that these sectors are labour intensive.

Table 8: Employment by sector (2008 – 2013)

Sectors Employment by Sector

2008 2009 2010 2011 2012 2013

Agro processing 5% 7% 9% 8% 11% 8.9%

Beverage/ spirits 0% 0% 0% 0% 1% 0.51%

Chemicals 1% 1% 0% 0% 0% 0.21%

Dartboard 1% 1% 1% 1% 1% 0.78%

Electricals 1% 0% 0% 0% 0% 0.04%

Food processing 1% 1% 1% 1% 1% 0.37%

Garments 85% 81% 78% 79% 80% 82.41%

Garments support services

0% 0% 0% 0% 0% 0.06%

Minerals/metals/gemstones

0% 0% 0% 1% 1% 0.89%


1% 0% 1% 1% 1% 0.75%

Plastics 0% 0% 1% 1% 1% 1.01%

Printing 1% 1% 1% 1% 1% 0.70%

Relief supplies 0% 0% 0% 0% 0% 0.20%

Services 3% 6% 6% 5% 2% 3.04%

Spinning 1% 1% 1% 1% 0% 0.00%

Other inc. Commercial crafts 0% 1% 0% 0% 0% 0.05%


Total number of employees

30,187 30,115 31,026 32,043 36,131 39,961

3.8.4.7. Local resource consumption by sector

The garments, agro processing and services sectors have consistently been the top 3 highest consumers of local resources for the period covering the 2008 to 2013 as highlighted in table 9 below. This has primarily been driven by ready source of raw materials in the case of agro-processing and the access to labour in the case of services and garments. The largest decline in the use of local resources was in the chemicals sector dropping by 13.2% followed by the garments sector with a decline of 4.87% contribution. The agro- processing sector and minerals /metals / gemstones continued to show the highest growth in the consumption of local resources.

Table 9: Local resources use by sector (2008 – 2013)

Sectors 2008 2009 2010 2011 2012 2013

Agro processing 14.2% 21.5% 25.4% 26.5% 29.2% 32.90%

Beverage/ spirits 0.6% 0.9% 1.0% 1.5% 1.4% 1.26%

Chemicals 13.6% 4.0% 0.0% 0.0% 0.3% 0.32%

Dartboard 1.2% 1.3% 1.2% 1.2% 1.0% 1.24%

Electricals 0.6% 0.3% 0.1% 0.1% 0.1% 0.11%

Food processing 6.8% 4.6% 3.7% 3.4% 3.1% 1.18%

Garments 35.4% 30.1% 30.2% 30.9% 30.6% 34.63%


0.3% 0.3% 0.1% 0.1% 0.1% 0.07%


0.0% 0.0% 9.4% 18.4% 17.1% 15.22%


2.3% 0.7% 1.0% 1.4% 1.2% 1.23%

Plastics 0.3% 0.5% 1.0% 1.2% 2.1% 1.77%

Printing 7.3% 5.0% 3.3% 3.7% 5.1% 3.44%

Relief supplies 2.3% 3.5% 2.6% 3.8% 1.9% 1.64%


Services 14.5% 26.4% 20.0% 6.5% 6.6% 4.99%

Spinning 0.5% 0.7% 0.8% 1.1% 0.0% 0.00%

Other 0.1% 0.1% 0.2% 0.1% 0.0% 0.01%

Total resources in Ksh millions

11,365.2 11,032.2 13,287.3 14,921.2

18,096.6

19,275.1

3.8.4.8. Number of firms by sector

The garments, agro processing and services sectors have consistently been the top 3 highest employment sectors for the period covering the 2008 to 2013 as highlighted in table 10 below. This has primarily been driven by factors attributed to above.

Table 10: Number of firms by sector (2008 – 2013)

Sectors 2008 2009 2010 2011 2012 2013

Agro processing 12% 13% 15% 20% 22% 24.71%

Beverage/ spirits 3% 2% 3% 4% 4% 3.53%

Chemicals 6% 5% 0% 0% 1% 1.18%

Dartboard 1% 1% 1% 1% 1% 1.18%

Electricals 5% 6% 7% 4% 4% 1.18%

Food processing 3% 4% 5% 5% 4% 3.53%

Garments 23% 23% 21% 23% 27% 25.88%


13% 12% 8% 9% 6% 4.71%


0% 0% 5% 5% 5% 4.71%


5% 4% 5% 4% 2% 3.53

Plastics 4% 2% 5% 5% 6% 5.88%


Printing 3% 1% 1% 1% 1% 1.18%

Relief supplies 1% 2% 3% 4% 2% 2.35%

Services 14% 16% 15% 11% 12% 11.76%

Spinning 1% 1% 1% 1% 0% 0.00%

Other inc. Commercial crafts

5% 7% 4% 3% 2% 3.53%

Total firms in the EPZ program

77 83 75 79 82 85

4. EPZA Strategic Direction 2014-19

In developing EPZA’s 2014 – 2019 strategic direction which includes EPZA’s vision, mission, core values, strategic pillars, objectives and tag line, a review of EPZ program background, situational analysis were taken into consideration. The reason for the aforementioned analysis is to understand the EPZ Program and EPZA’s current position, in order to map out its future position. The figure 13 below illustrates an overview of EPZA’s 2014 – 2019 strategic direction with explanatory notes in the subsequent pages.


Figure 13: EPZA strategic Planning Process

The strategic planning process as shown in Figure 13, above involves a process of assessing where EPZA is today (review of past performance), what is possible, what feasible (strategic results) is and then finally how EPZA will get there. (The strategic objectives and initiatives, all summarised in the balanced score card implementation matrix attached as Appendix 1).The first step in the formulation of strategy was the strategic organisational assessment which combines the SWOT and PESTEL analysis to derive enablers and pains. This is shown graphically in Figure 14 below.


Figure 14. Strategic Organisational Assessment

Customer Value Proposition

The value an organization intends to create for its customers and stakeholders is normally referred to as the Customer Value Proposition (CVP). A CVP articulates the net benefit a customer derives from using the organization’s products or services; it is the experience of the customer as a result of interacting with the company and its product and services.EPZA CVP summary: EPZA: a caring, effective business enabler who makes investments happenPrimary Customers: EPZ InvestorsSecondary Customers: Consumers of non-core EPZ Products, water consumers, Information seekers Key Stakeholders: Government of Kenya, communities where EPZs are located, EPZ sector employeesAttributes: EPZA delivers affordable, accessible packages of complete, customized solutions for investing exporters and other customers in a quick, efficient and responsive manner, using sector specialized, customer focused expertise. Relationship: EPZA engages with its customers in a welcoming, friendly, professional way and is an actively engaged listening partner. Customers interact with EPZA through several touch points but each relationship is managed by a key account relationship manager assigned to each investor. EPZA has a strong customer service ethic.Emotional appeal/brand/image: EPZA is positioned as a market leader in its field, serving as an effective, key economic change agent for Kenya. EPZA seeks to be well known and recognized as a good corporate citizen.


4.1.Vision

EPZA’s vision is the future ideal state that it wants to achieve. EPZA’s vision for 2014 – 2019 is:“To Be the Leading, globally competitive Agency for the Promotion of Export Oriented Investments and Trade”The EPZA is a public agency, and thus in developing its vision for 2014 – 2019 the primary driver of its vision is Government of Kenya’s and the Ministry of Industrialisation and Enterprise Development’s strategic direction as stipulated in Kenya’s Vision in 2030, Kenya’s Second Medium Term Plan (2013 – 2017) and Kenya’s Industrialisation Policy. Additionally, EPZA’s vision for 2014 – 2019 was articulated by its key stakeholders who included its Board of Directors, EPZA employees and the EPZ enterprises (current and potential). EPZA’s vision for 2014 – 2019 captures the key purpose of EPZA which is export promotion. Additionally given the fact that there are various players in Kenya’s export sector and other export processing zone competitors internationally, EPZA will aim to the leading player amongst all these players, in investment attraction for export, by ensuring it has a highly effective & efficient organisation and by partnering with the best fit partners.

4.2.Mission

Mission is the means through which vision is realized. EPZA’s mission for 2014 – 2019 is:“To Efficiently Attract and Retain Export Oriented Investments and Trade”EPZA’s mission for 2014 – 2019 indicates how EPZA will attain its vision. In order to achieve its mission for 2014 – 2019; EPZA will undertake specific strategic initiatives that have been detailed in the “Strategic Initiatives” section detailed in the succeeding pages.

4.3Core values

EPZA’s core values are those key standards/beliefs it will adopt in its day to day operations in order to achieve its mission. EPZA’s core values for 2014 – 2019 are: Efficiency: The EPZA board and employees believe organizational efficiency will enable it to

provide timely, high quality solutions to its customers . EPZA will strive to make sure that all its employees are efficient in their work and efficient systems/tools are deployed to assist them in delivery of EPZA solutions;

Governance: EPZA embraces the principles of good corporate governance at all levels and in all decision making in the Authority. Accountability, transparency, good stewardship of resources, adherance to the law and proper exercise of delegated responsibility in the public interest are all valued;

Innovation: EPZA will continuously innovate its products and operations to adapt to its environment. Additionally, EPZA will continuously research on future trends that will impact its environment and accordingly innovate products and operations in time to take advantage of those trends;

Integrity: EPZA board, managment and staff will exercise integrity, honesty, fairness and moral probity in all thier dealings amongst themselves and with the members of the various publics, and will seek to deter, prevent, expose and punish unethical practices; and


Teamwork: The EPZA board and employees will continue to work together as a team through cultivation of good working relations within EPZA and with its various stakeholders in order to achieve its mission and ultimately its vision.

4.4Strategic Themes

EPZA’s 2014 – 2019 strategic direction is coalesced into 3 key focus areas or strategic themes which support its 2014 – 2019 strategic direction as it strives to realize its vision. EPZA’s strategic themes will be realized through a number of strategic initiatives each targeted towards implementing specific directions of the strategy. EPZA’s 3 strategic themes are: Organisational Excellence: EPZA achieves organisational excellence in order to become and

efficient and effective authority. It will optimise human capital, improve internal business process, engage in product diversification so as to improve financial performance, increasingly reinvesting in customer attraction and retention and thus achieving increased business growth and citizen value

Customer Focus: EPZA will attain its purpose through the customers who deliver economic value through increased investment, resulting in increased foreign exchange earnings, enterprise growth and ultimately GDP growth and the creation of jobs EPZA will embrace knowledge management and build strategic partnerships to assist the Authorit to better understand and serve her customers

Brand Positioning: EPZA will use technology and strategic partnerships to engage in policy advocacy to enhance the policy environment, and to improve the business operating environment, thereby reducing the cost of doing business. EPZA will live out its brand promise by providing and communicating its superior services and value adding solutions, positioning Kenya’s EPZs as the best investment location for its target customers.

4.5Strategic Outcomes

The EPZA’s corporate objectives for 2014 – 2019 are those high level targets that must be achieved in order for the EPZA to realize its vision. These corporate objectives have been guided by the EPZ Act, Kenya’s Vision 2030, Kenya’s Second Medium Term Plan, Kenya Industrialisation Policy and key factors and trends in EPZA’s environment. The key strategic results from this strategic plan are: An effective and efficient Authority Increased Socio-economic contribution Improved competitive business environment

EPZA strategic corporate objectives for 2014 -19 are: To increase employment in the EPZs to 156,000 by 2019; To increase EPZ contribution to GDP to 3% by 2019 (using rebased GDP calculation) To diversify the markets, industries and type of EPZ enterprises targeted, attracted and

sustained; and To be financially self-sufficient on recurrent budget, by 2019.


4.6Tag Line

The tag line will ensure the alignment and expectations of all its stakeholders with the EPZA’s vision statement and will also underline its contribution to Kenyan economy through EPZ program. The EPZA’s 2014 – 2019 tag-line is:

“Making Investments Happen”

The graphical summary of the strategy is given in Figure 15 below

Figure 15: EPZA 2014 – 2019 Strategic Direction


5. EPZA Strategy

5.1.Product

The EPZA “As-Is” products are shown in table 11 below and their respective analysis and income values have been highlighted in the section on Income. In order to achieve sustainability and added value for clients EPZA will extend their product offering for both core and complementary products.

Table 11: the EPZA “As-Is” and “To-Be” ProductsType of Product As - Is To - Be DetailsCore EPZ Products

EPZ Developer Operator Licence

EPZ Developer Operator Licence

Innovate on new types of zone facilities to meet tenant needs, and provide legislative support for their roll out where necessary e.g. Textile city, leather zones with shared waste water pre-treatment facilities, dedicated commercial trading zones

EPZ Enterprise Manufacturing and Services Licence

EPZ Enterprise Manufacturing and Services Licence

Create support frameworks for desirable manufacturing and service sector, especially those employing large numbers of worker.

EPZ Enterprise Commercial Licence

EPZ Enterprise Commercial Licence

Enhance access to local market for certain commercial enterprise sectors through legislative reform

Business Service Permit Business Service Permit

Expand service list e.g.to provide for educational institutions to provide on-site training in EPZs to enhance EPZ staff capacity and skills

Business Climate And Sectoral Information

Business Climate And Sectoral Information

Continuously engage in structured, customer oriented research and package results, making them available to investor, reducing their research and decision making costs and time.

Business Incubation Service

Business Incubation Service under Export Business Accelerator

Provide additional customer-demanded services including export market entry, staff training and product development support for identified clusters of small and medium sized EPZ enterprises


Type of Product As - Is To - Be Details

Business Linkage Services

Business Linkage Services

Joint ventures and other strategic partnerships, sourcing and supply chain development. Co-location of complementary industries in adjacent industrial parks.

One stop Shop

Effective single one stop window for information and for processing all investment related permits and approvals within defined and customer friendly timelines. Migration to virtual one-stop-shop

Market Facilitation (1)

Enhanced support to EPZ sector to preserve and enhance access key export markets through researching, lobbying and negotiations

Market Facilitation (2)

Market entry support, including EPZ exporter trade fairs, product and service catalogue, seminars, exhibitions, website and social media marketing

Sector Specific incentives

Incentives tailored to sectors e.g. special short term work permits for the film sector support for large employers’ industrial relations and collective bargaining, training incentives for targeted labour intensive industries.

Complementary Products

Buildings for rental Buildings for rental

Develop quick-delivery industrial building solutions, to provide completed industrial buildings in public zones, cost effectively within 4 months of tenant commitment

Land for lease Land for leaseDifferentiated land offerings, including by location, whether fully serviced or semi-serviced.

Water and Sewerage Services

Water and Sewerage Services

Extended water and sewerage services to the EPZ -Athi River environs; new methods of payment,

Professional support services

Linkage of investors with professionals through referral e.g. consultants, architects, lawyers, surveyors, security etc. through strategic partnerships provided by the EPZA.

Stable and cheaper sources of electricity

Negotiated power solutions for EPZ export sectors for more competitive power costs and through focus on lower cost,


Type of Product As - Is To - Be Details

sustainable power production.

Social Amenities

Expansion of service delivery by social services providers in EPZ sector for accommodation, restaurants, entertainment facilities etc.

Transport and Logistics Services

Forward linkages with transport service providers through strategic partnerships, for lower transport costs rates.

Financial ProductsStrategic partnerships with financial services sector players for customised financial products for EPZ enterprises.

Technical training

Linkage of EPZ firms with training providers to provide relevant training services through strategic partnerships provided by the EPZA e.g. Regional centre for textiles and apparel

Income Generation Opportunities

Grass & Hay Forestry and agri-business

Harvesting and regeneration of EPZA tree plantation, market gardening and production of hay for sale

Trees and Poles Meeting, conferencing and training services

Utilization of existing facilities and new custom built facilities at Athi River zone for meetings, exhibitions, conferences and training.

5.2.Market

Continuous marketing analysis will be required to keep the EPZA relevant and updates. As identified by numerous stakeholders, diversification of products and markets is required by the EPZA. As depicted in the diagram below, the process of bringing a product to market that satisfies the customer’s needs is described in three steps, the situation analysis, marketing strategy and marketing mix decision.


Figure 16: The EPZA Marketing Process

5.2.1. Market Segmentation

The following countries have been identified as target sources of investment and as export markets for EPZ goods, based on their respective growth rates, imports and availability of resources. However a detailed case study will be conducted and a priority matrix developed to identify key market potential and to support the growth of both new and existing EPZ sectors.Africa: Kenya, South AfricaMiddle East: Turkey, UAEAsia: China, Taiwan, Korea, India, Sri-Lanka, BangladeshEU: Germany, UK, France, BeneluxNorth America: USA

5.2.2. Sector Segmentation

The following 7 sectors were selected as target sectors based on their potential growth. However sector specific case studies will be conducted based on strong local fundamentals and the existing environment. 1. Garments and textiles: The garments sector has traditionally been a major contributor to

the EPZ program due to the benefits enjoyed under AGOA program. With its consistent contribution to the EPZ program, the garment and related textile sector will continue to be a focus sector for EPZA. Emphasis will be on both firm-based advantages and policy based interventions for preservation and expansion of market access and to supporting market entry, vertical integration, staff capacity buildings and reduced operating costs. .

2. Non-food agro-processing: Kenya has traditionally been a major exporter of agricultural related products due to presence of a suitable climate, large land mass, access to irrigation


water and other supporting conditions EPZA will continue to focus on supporting the growth of value added agro-processing, taking into account its consistent contribution to the EPZ growth and high global growth rates. Market expansion to the EU and other markets will be explored to ensure sustainability. This sector includes products such as essential oils, vegetable extracts, fibres, biofuels and cosmetic ingredients.

3. Food processing and horticulture: Closely related to the agro-processing sector, the food processing sector has been growing at a steady rate and is experiencing high growth rates globally. This sector includes processed tea, value added coffee, nuts, juices, meats, dairy, juices, dried spices, cereals, dried fruits, relief foods, herbs and other edible goods.

4. Leather and leather goods: leather production and exports in Kenya has been steadily rising sincethe imposition of tax on export of hides and skins. EPZA will facilitate the development of an export oriented leather and leather goods in the EPZs to supply high value leather garments, footwear, upholstery, leather luggage and accesories to global and regional market.

5. Services: The services sector has steadily grown in the EPZ program over the last 5 years and has high global growth rates. Additionally, some services sub-sectors are characterised by high employment rates which is in-line with the EPZA corporate objectives. Support will be directed to this sector to take advantage of current trends by global BPO players looking for new locations with reasonably priced manpower, ready buildings and reliable internet bandwidth in East Africa. Services may be targeted are: business process outsourcing, IT enabled services, marine repair and logistics, shared coprorate service centres and export brokerage, among others.

6. Pharmaceuticals and medical goods: The pharmaceutical sector is experiencing high growth rates globally with increased access to medical care and aging populations in Western countries. Taking into account its high growth rate and growth potential in Africa, the EPZA will focus on attracting export oriented pharrmaceutical value chain players..

7. Minerals/metals/gemstones: This includes mineral beneficiation including base metal production, dimension stone, gemstone cutting and setting among others. This sector has been characterised by high level of investments and use of local resources. Additionally, Kenya is endowed with a wide variety of mineral based raw materials which have not been fully utilised. Taking these factors into consideration, the EPZA will focus on attracting and facilitating gemstone cutting and polishing, dimension stone cutting and the production of mineral based chemicals for export.


5.2.3. Target MarketTable 12: Target market and their needs

Target Market Needs Local & foreign investors with capacity

to invest in: Manufacturing and processing units Commercial trading units Exportable services and Real estate development with

infrastructure and utility provision; Local investors with business acumen

and drive to engage in exports under the Export business accelerator (EBA) in manufacturing and service activities with the capacity to achieve:

High percentage of sales as export; Diversification of export products; High rate of growth of corporate

sales Strong backward linkages with raw

materials or technology sectors; and

Timely graduation from incubator to fully fledged EPZ status.

Local and foreign investors who can provide supporting business services which enhance the attractiveness of the zone and the efficiency of zone firms.

All investors should be able to achieve: High exports; High employment rates; High sectoral growth rates.

Available and well serviced land Efficient and effective One-Stop-

Shop; Provision of extended KRA hours; Up to date market and sectoral

information; Backward and forward linkages

assistance; Marketing facilitation; Sector specific incentives; Professional services e.g. lawyers,

architects; Secure and well lit premises; Stable and cheaper sources of

electricity; Affordable sources of raw materials; Social amenities e.g.

accommodation; Affordable transport and logistics

services; Affordable local financial products; Technical training; Greater access to regional market. Available well serviced land, good

landscaping and in a clean environment;

Clear, straight forward lease and development guidelines

Suitable building available and in good state of repair;

Accessible sewerage and other waste disposal services; and

Roads, in good state of repair.County Governments Zones to be established in their

counties Provision of basic infrastructure Budgetary support from national

government for zone developmentUsers of EPZA complementary products Availability of serviced land for lease;

Ready buildings for lease Clean Water and effective sewerage

services.Recipients of EPZA non-core products Adequate supply of the non-core

products(Grass& hay, trees, firewood and poles).

Variety of the non-core products.


6. Implementation plan: Balanced Scorecard approach

The EPZA implementation plan is be based on the balanced scorecard (BSC) approach which will provide the following benefits. Translating strategy into action; Enhancing focus on critical measures; Aligning capital expenditure to strategy; Increasing robustness of management information; and Aligning individual goals with organizational strategic objectives.BSC is a management “system” that links strategic objectives to performance measures, targets, and initiatives. The BSC measures organizational performance from four perspectives: “Financial,” “Customers,” “Internal Business Process,” and “Learning and Growth” (which includes people, resources, systems, knowledge, intellectual property, etc.). It works on the premise that financial results are lagging indicators of business performance which depend on organisational capacity, business processes and profitably meeting customer needs. Thus the balanced scorecard approach integrates high level results with contributing factors.BSC recognizes that in broad terms, interventions in the “Learning and Growth” or “Organisational Capacity” perspective will help enable processes in the “Internal Business Process” perspective, which in turn will help serve the “Customer” perspective, which will lead to greater optimisation of the EPZ program in the “Financial” perspective. The measures in the financial perspective are critical to assess organizational performance but that is not where future value gets created; it has to start farther back in the causality chain mainly within the “Learning and Growth” perspective and, to a lesser degree within process and customer perspectives. BSC approach for EPZA is illustrated in figure 17 below.


Figure 17: How the BSC works

In order to achieve its key strategic results, the results have broken down into strategic objectives which will then guide the implementation of the EPZA 2014 – 2019 strategic plan based on the strategic themes and focus areas.


Figure 18: EPZA Strategy Map

6.1.Customer Perspective

The customer perspective focuses on the analysis of the different types of customers, their degree of satisfaction and the processes used to deliver products and services to customers. Particular areas of focus include, customer service; new products, new markets, customer retention; customer satisfaction and what the organization needs to do to remain that customers’ valued supplier. EPZA has identified its customers as current and future investors, users of EPZA complementary and non-core products, EPZ employees, and the Government of Kenya. The key initiatives for specific strategic objectives, under the customer service perspective include:

6.1.1. Increase Business Growth and Citizen Value

The ultimate goal of EPZA is to contribute to Kenya’s GDP and increase citizen value through increasing exports, employment, technology transfer and global market share. Execute Employment Incentive scheme for large employers- in consultation with the

investors and industry players, develop and implemt a progressive investment support package capable of attracting and retaining identified labour intensive industries and encouraging large employers to expand employment within the EPZ program.

Raise Profile of EPZ program’s contribution to national economy- This initiative seeks to profile and publicise the EPZ program’s critical role in economic development, to enable


citizens and other stakeholder’s appreciate its contribution and to have the EPZ sector specifically represented in key economic policy bodies.

6.1.2. Increase Customer Attraction and Retention

EPZA will re-engineer its internal business processes to be customer focussed as well as invest in improving facilities and service delivery, in order to attract and retain customers. Develop and implement Customer Care program – To enhance the quality of service

delivered to its customer, EPZA will proactively engage with its customers at all levels through a Customer Care program. This will include new ways to interact with customer, a “ Help Desk” system for customer complaint handling, refining the client service charter in line with the OSS, supporting customer care champions, intensive training in customer care across all levels in the organisation and support for customer outreach activities.

Develop and implement operationalisation and retention program- To enhance operationalisation and retention of EPZ investment, EPZA will implement a program to give proactive support, trouble shoot and offer solutions to investor.

Enhance CRM capabilities- For more effective interaction with customers, EPZA will operationalise a Customer Relationaship Management (CRM) system with supporting software to facilitate and document all marketing interaction withcustomers including lead generation.

6.1.3. Improve the EPZA brandEPZA will continuously seek to improve Kenya EPZ brand’s rating as a destination for export oriented investment and trade.

Develop and implement a brand strategy – A comprehensive corporate re-branding strategy to improve Kenya’s EPZs ratings as an investment destination. The re-branding seeks to reposition EPZA in the customer’s mind, to progressively enhance brand recognition, recall and favourable association and the desire to engage with the EPZ brand, through active and guided engagement of all staff in delivering the EPZA brand promise. Corporate clothing, moveable and fixed assets and coporate communications will carry the new brand logo and brand colours.

Develop and Implement a Communication Strategy- To dramatically increase awareness of Kenya’s EPZ program and the benefits the program provides to investors, locally and internationally, EPZA will develolp and implement an innovative communication program to enhance awareness and 2-way communication between the Authority and it various publics, using both conventional and social media.

Implement a branded CSR program in collaboration with EPZ enterprises- To improve perception of the EPZ program and the EPZA brand, EPZA will partner with EPZ enterprises to develop and implement a branded Corporate Social Responsiblity (CSR) program, incorporating EPZA staff and the staff of EPZ enterprises in initiatives which benefit the community. Initiative to be in areas of health, education and enterprise.

6.2.Financial Perspective / Stewardship

6.2.1. Reduce Cost of Doing Business Global competition requires EPZA to continuously monitor production factor costs. EPZA will implement innovative programs to reduce cost of utilities, logistics, work permits and finance, to


increase incentives and labour productivity, and to offer competitive zone facilities and financial offerings, all in an effort to attract and retain export oriented investments.

Develop and implement productivity improvement program for key EPZ sectors- This strategic initiative will identify key EPZ sectors and in consultation with investors involved, develop labour productivity improvement program to make the sectors more competitive.

Develop and implement factor cost reduction initiative-This initiative will involve key factor costs analyses, benchmarking with regional and global competitors, identifying, lobbying for and implementing some cost reduction opportunities to improve competitiveness of Kenya’s EPZ program

Development and promotion of financial products for EPZ sector- Partnering with financial institutions, EPZA will facilitate the development of innovative financial solutions for the EPZ sector, to mitigate high interest rates and risk charges levied on the sector.

6.2.2. Increase net foreign exchange earningsIn order to enhance business growth, EPZA will increase foreign exchange earnings by boosting exports and local purchases.

Develop and implementan export promotion program –This initiative will seek to identify and support EPZ firms capable of exploiting existing and emerging market access opportunities. Market entry interventions using relationships with relevant agencies in Kenya, and in target markets, including sourcing funds from them.

Develop and implement aforward and backward linkage program for selected industries – this initiative seeks to study and select suitable value chains and then encourage and induce EPZ firms to source more goods and services locally by supporting the development of the local supply chain.

6.2.3. Improve Financial PerformanceUsing Initiatives and programs that increase revenue generation, to maximise return on investment and return on assets, and also reduce costs and improve debt management.

Develop and implement portfolio management programs for all EPZ productlines (to better focus resources on result-bearing areas, the Authority will review budgeting systems to allocate capital budgets and operating expenses to areas which have capacity to generate revenue for the Authority. Each product line managed as a portfolio with portfolio holders being responsible for both revenues and cost targets.

Develop and implement surplus budget initiative – this initiative will ensure EPZA always realises budget surpluses.

Cost optimisation initiative – this project will ensure EPZA reduces operating costs

6.3.Process Perspective / Internal Business Process

6.3.1. Improve Business Operating Environment

EPZA will improve the business environment by reducing impediments to business operation such as minimising turnaround time, availing information and improving infrastructure.


Set up an Effective One stop shop – This initiative seeks to accelerate the establishment of an effective one stop shop, to provide a single window for key services to investors at EPZA offices, and in phase 2 to operate a virtual OSS network as the normal system

6.3.2. Improve Investment Levels

In order to improve financial performance and increase foreign exchange earnings, EPZA will leverage diverse investment opportunities to grow investments. Develop and implement marketing strategy –This initiative will ramp up strategic

marketing through development and implementation of a marketing strategy to attain corporate investment attraction targets.

Develop and implement land acquisition and zone development program – This initiative will see 3 new public zones under development by EPZA e.g. in Kitale, Samburu and Nyeri while Athi River and Kipevu zone capacities are enhanced. Other zones will have been developed by public sector agencies and by the private sector with whom EPZA will collaborate to identify and designate new zones

Establish and support growth of zone development fund –Funds for 3 new public zones development and for the refurbishment and expansion of Athi River and Kipevu zones, raised in partnership with strategic allies

Establish a textile city–This initiative will develop and provide physical infrastructure and facilities suited to the needs of the textile and garment producers to reduce the cost of their establishment at Athi River zone

Establish a regional centre of excellence for textiles and apparel– This initiative seeks to make Kenya the hub for capacity building, training and applied research for the textile and apparel industries in East and Central Africa. The centre will serve as a resource for apparel industries management, reducing reliance on expatriates using the competitive strengths of academic, research, design, policy and regulatory institutions in East Africa as well as those of private sector firms.

Develop and implement a local investment promotion and support program. This is a locally targeted investment promotion and enterprise support program.

6.3.3. Improved Internal Business Processes

EPZA will evaluate and review business processes with a view to simplifying, integrating, re-engineering and automating key processes for enhanced performance. Develop and implement business process restructuring program – This initiative seeks

to study, review and rationalise internal business processes at EPZA to create efficiencies and effectiveness, for better service delivery and increased customer satisfaction. Only value adding processes will be retained and internal team work and communication will be enhanced.

6.3.4. Improved Policy environment

EPZA’s efforts to improve the policy environment for EPZs aim to make Kenya the most competitive investment designation for export oriented production and services. We will invest resources in policy advocacy in order to improve the ease of doing business, reduce the cost of doing business, and improve the business operating environment.


Review of Policy Advocacy Programs at EPZA- This initiative will improve policy and legal environment for EPZ operations. It will expand the Authority’s capacity, support the regulatory and policy reforms towards establishment of SEZ, which are complementary to EPZs, and produce competitive incentives for EPZ operations.

Regional Market Access Initiative – This initiative seeks to champion and accelerate the granting of increased access for EPZ goods to the regional and local markets, above 20%

6.3.5. Diversify investment and market opportunities

EPZA’s business success will depend on developing new products and services, venturing into new markets through strategic promotion and exploitation of existing business opportunities. Develop and implement product diversification strategy – This project will develop and

market new EPZ products and services to meet investor’s and other client’s existing and emerging needs.

Implement Export market diversification strategy – This project will enhance market access and market entry for goods and services from the EPZs to markets other than the USA and enhance penetration of non-textile goods to existing market opportunities.

6.3.6. Build Strategic Partnerships

EPZA will identity value adding stakeholders and actively engage in value propositions to progressively build dynamic, strategic and mutually beneficial partnerships, that enhance and improve the investment policy environment. Develop and implement partnership management program – this initiative seeks to

leverage strengths and capacities of value adding stakeholders to support the achievement of the Authority’s purpose. Relationships developed should be dynamic, strategic and mutually beneficial

6.4.Organisational Capacity (Learning and Growth/People, Technology and Tools)

6.4.1. Improve Corporate Culture

Enhanced employee engagement through formal and informal groups Change management program – effective implementation of change management program

6.4.2. Optimise Human Capital

EPZA will enhance and make full use of its human capital, to achieve strategic outcomes Review, devise and implement an effective organisational structure- improved HR capacity Review and implement employees motivational strategies – Improved employee satisfaction

6.4.3. Embrace knowledge Management

EPZA will capture, apply and generate value from employees’ knowledge, experience, creativity and expertise to build business competitive advantage Develop and implement knowledge management strategy – Knowledge will be

documented in electronic databases. Knowledge sharing will be achieved though informal conferences, workshops, brainstorming and one to one sessions.


6.5.Monitoring and Evaluation Framework

Monitoring and Evaluation framework, hereinafter referred as M&E Framework, is a critical component of the strategy implementation plan. The purpose of the M&E framework is to measure the extent to which planned activities and targeted outputs are being achieved. Through M&E, EPZA will be able to identify where the organization intends to be and how to get, there and then evaluate achievement of desired targets within the plan period.EPZA has set goals that have to be achieved by 2019. The strategies to achieve these goals must be implemented in an orderly and coordinated manner. Consequently, a comprehensive Monitoring and Evaluation framework must be put in place to provide the requisite feedback in the sourcing and utilization of the resources towards successful implementation. The information generated is then objectively used for critically reviewing the success of respective programs. In summary the EPZA will adopt the following: An M&E Committee will be formed to continually monitor the progress of the strategic plan; The M&E Committee will report to the EPZA board on quarterly basis on the progress made

towards achieving the planned goals; The CEO and the division/department heads to champion the implementation plan; This

implementation will be guided by the agreed key performance indicators for each initiative; CEO to chair monthly meetings with divisional/departmental heads. During the meetings,

departmental heads to provide feedback on implementation of their strategies along with challenges faced. The objectives and initiatives should be cascaded to all the EPZA departments detailing the key activities required by the departments to implement the strategic objectives; and

Departmental plans should then be rolled out every year and level of achievement of the corporate goals documented.

Annual reviews also to be done and a Mid-term review in year 3.


Appendix 1: EPZA Financial Projections 2014/15 to 2018/19



FINANCIAL YEAR 2014/15 to 2018/19

ACTUAL FORECAST TOTAL (2015-19)

'2011/12 2012/13

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Ksh ('000)

Ksh ('000)

Ksh ('000)

Ksh ('000)

Ksh ('000)

Ksh ('000)

Ksh ('000)

Ksh ('000)

Ksh ('000)

Revenue/IncomeApplication Fees

675 1,110

805

978

1,275

1,806

2,274

2,763

9,095

Licence Fees 23,533

25,290

29,832

29,759

33,224

40,307

47,835

53,587

204,712

Rental Income 68,973

101,567

157,677

160,831

164,047

167,328

170,675

174,088

836,969

Water sales 84,806

71,226

87,502

91,877

96,471

101,295

106,359

114,868

510,870

Other Incomes 9,807

9,717

28,302

53,962

64,755

77,706

93,247

111,896

401,567

Internally Generated (A-in-A)

187,795

208,910

304,118

337,406

359,772

388,442

420,389

457,202

1,963,212

-Government grant (Recurrent)

146,828

103,586

118,435

111,600

111,600

111,600

111,600

111,600

558,000

-Total Revenue

334,623 312,496

422,553

449,006

471,372

500,042

531,989

568,802

2,521,212

Expenditure -Personnel Emoluments

191,134

189,659

212,399

233,639

257,003

282,703

310,973

335,851

1,420,169

Goods, Utilities,Supplies & Services

6,531

7,324

6,004

6,304

6,619

6,950

7,298

7,663

34,834

Communication Supplies & Services

4,544

6,505

4,976

5,225

5,486

5,760

6,048

6,351

28,869

Investments Promotion Expenses

6,151

2,354

3,624

3,805

3,995

4,195

4,405

4,625

21,024

Domestict travel & Subsistence

7,471

7,123

7,925

8,322

8,738

9,175

9,633

10,115

45,982

Foreign travel & Subsistence

28,414

11,393

7,773

8,162

8,570

8,999

9,449

9,921

45,101

Printing & advertising, Information supply & services

8,178

8,638

6,790

7,130

7,486

7,861

8,254

8,666

39,396

Rental of produced assets

9,241

7,023

4,804

5,045

5,297

5,562

5,840

6,132

27,875

Training Expenses

20,574

11,946

14,814

15,555

16,333

17,149

18,007

18,907

85,952

Hospitalities Supplies & services

13,107

7,838

10,401

10,921

11,467

12,041

12,643

13,275

60,346

Insurance costs 4,113

2,544

23,847

25,040

26,292

27,606

28,987

30,436

138,361

Specialized materials and supplies

2,840

2,370

3,642

3,824

4,015

4,216

4,427

4,648

21,129

Office general supplies

4,243

2,905

3,342

3,509

3,684

3,868

4,062

4,265

19,388

Fuel, Oil and Lubricants

2,870

3,327

3,068

3,221

3,382

3,551

3,729

3,915

17,798

Maintenance of Vehicles and other transport Equipment

2,619

2,960

2,133

2,240

2,352

2,469

2,593

2,722

12,376

Notes

1. The operating expenses have been projected based on the past cost trends or movements.

2. It is assumed that the Authority will receive a constant recurrent grant of 3. Kshs.111.6Million from FY 2014/15 to 2018/19 To boost revenue, management will

have to explore the following ways:

a. Reviewing the rates in each of the revenue streamsb. Having additional revenue streams c. Cost control and managementd. Minimise the losses in water distribution.


Appendix 2: Tier 1- Balanced Score Card Implementation Matrix - EPZA Strategic Plan 2014-19No

Performance Measures

Strategic Initiatives

Objective Owners

Targets SI Description Budget Start Date

End Date

Customer PerspectiveStrategic Objective: Increase Business Growth and Citizen Value: The ultimate goal of EPZA is to contribute to Kenya’s GDP and increase citizen value through increasing exports, employment, technology transfer and global market share.1 1. Increased

employment 2. Increased contribution to GDP by EPZ program

Employment Incentive program for large employers

CEO, BD, UTS, Legal, OIS

1. 156,000 direct jobs in the EPZ program by 2018/19 up from 39,961 in 2013/14

In consultation with the investors/industry players develop and implement a progressive investment support package capable of attracting and retaining identified labor intensive industries and encouraging large employers to expand employment within the EPZ Program.

Jan-15

Jun-18

Raising Profile of EPZ program contribution to national economy

CEO, BD, UTS, Legal, OIS

2. 3 % of Kenya's GDP contributed by EPZ sector up from 1.32% in 2013 (rebased)

This initiative seeks to profile and publicise the EPZ program's critical role in economic development, to enable citizens and other stakeholder appreciate its contribution and to have EPZ sector specifically represented in key economic policy bodies.

Sep-14

Jun-18

Strategic Objective: Increase Customer Attraction and Retention: EPZA will re-engineer its internal business processes to be customer focused as well as invest in improving our facilities and service delivery in order to attract and retain customers.


No



Objective Owners


End Date

2 1. Improved Customer Satisfaction 2. Increased number of operational enterprises

Develop and implement Customer Care Program,

GMs, Manager, UTS

1. Customer Care program implemented.2. Customer retention up from 82% in 2012/13 to 90% in 2018/19

To enhance the quality of service delivered to its customers, EPZA will proactively engage with its customers at all levels through a Customer Care program. This will include new ways to interact with customers, a "Help desk" system for customer complaint handling, refining the client service charter in line with OSS, supporting customer care champions, intensive training in customer care across all levels in the organisation and support for customer outreach activities.

Sep-14

Jun-17

Develop and implement operationalisation and retention program

GMs, Manager, UTS

2.Customer retention up from 82% in 2012/13 to 90 % in 2018/19

To enhance operationalization and retention of EPZ investments, EPZA will implement a program to give proactive support, troubleshoot and offer solutions to investors.

Dec-14

Jun-16

Enhance CRM Capabilities

GMs, Manager, UTS

3. CRM system operationalised

For more effective interaction with customers, EPZA will operationalize a Customer Relationship Management system supported by software to support and document all marketing interaction with customers including lead generation.

Oct-14

Jun-15

Strategic Objective: Improve EPZA Brand. EPZA will continuously seek to improve Kenya's EPZ brand ratings as a destination for export oriented investments and trade.3 Improved 1. Develop and BD, GMs, Brand strategy A comprehensive corporate re- Sep- Feb-15


No



Objective Owners


End Date

Corporate Brand

Implement Brand Strategy

Manager, PR implemented branding strategy to improve Kenya's EPZs' ratings as an investment destination. The re-branding seeks to reposition EPZA in the customers' mind, to progressively enhance brand recognition, recall, favorable associations and the desire to engage with the EPZA brand, through active and guided engagement of all staff in delivering the EPZA brand promise. Corporate clothing, moveable and fixed assets, and corporate communications will carry the new brand logo and brand colours.

14

2. Develop and Implement Communication Strategy

BD, GMs, Manager, PR

Communication strategy implemented

To dramatically increase awareness of Kenya EPZ program and the benefits the program provides to investors, locally and internationally, EPZA will develop and implement an innovative communication program. Program to enhance awareness and 2-way communication between the Authority and various publics using conventional and social media.

Dec-14

May-18

3. Implement Branded CSR Program in collaboration with

BD, GMs, Manager, PR

CSR Program implemented

To Improve perception of EPZ program and the EPZA brand, EPZA will partner with EPZ enterprises to develop and

Dec-14

May-17


No



Objective Owners


End Date

EPZ enterprises implement a branded CSR program, incorporating EPZA staff and the staff of EPZ enterprises in initiatives which benefit the community. Initiative to be in areas of health, education and enterprise.

Financial PerspectiveStrategic Objective: Reduce the cost of doing business. Global competition requires us to continuously monitor production factor cost. EPZA will implement innovative programs to reduce cost of utilities, logistics, work permits and finance; to increase incentives and labour productivity; and to offer competitive zone facilities and financial offerings in an effort to attract and retain export oriented investments.4 1. Increased

labour productivity 2. Availability of competitive factor costs for EPZ sector 3 Availability of competitive financing for EPZ sector

Develop and implement productivity improvement program for key EPZ sectors

GMs, Legal, UTS

Productivity improvement program implemented

This strategic initiative will involve identification of key EPZ sectors and for each of the sectors and in consultation with the investors involved, develop labour productivity improvement program to make sectors more competitive. Surveys will establish the prevailing labour productivity levels and identify bottlenecks that impede on high levels of productivity. Thereafter a yearlong sector specific labour improvement programs designed and implemented, for each sector.

Dec-14

Jun-17

Develop and implement factor cost reduction initiative

GMs, Legal, UTS

EPZ sector Factor costs reduction initiative implemented.

The initiative will involve key factor cost analysis, benchmarking with regional and global competitors, identifying, lobbying for and implementing

Oct-14

Jun-16


No



Objective Owners


End Date

some cost reduction opportunities to improve competitiveness of EPZ program.

Development and promotion of financial products for EPZ sector

GMs, Legal, UTS, BD

5% of EPZ firms using the products

Partnering with financial institutions, EPZA will facilitate the development of innovative financial solutions for the EPZ sector, to mitigate high interest and risk charges currently levied on the sector.

Oct-14

Dec-16

Strategic Objective: Increase net foreign exchange earnings. In order to enhance business growth, EPZA will increase foreign exchange earnings by boosting exports and local purchases.5 1. Increased

EPZ Exports 2. Increased total domestic expenditure by EPZ sector

Develop and implement an export promotion program

OIS, UTS, BD EPZ exports Increased from Ksh. 44.4 billion in 2013/14 to 155.5 billion by 2019

This initiative will seek to identify, and support EPZ firms who are capable of exploiting existing and emerging market access opportunities. Market entry interventions using relationships with relevant agencies in Kenya and in target markets including sourcing funds from them.

Jul-15 Oct-18

Develop and implement a forward-backward linkage program for selected industries

OIS, UTS, BD Increased in total domestic expenditure from Ksh 21 billion in 2013/14 to Ksh 52.5 billion by 2019

This initiative seeks to study and select suitable value chains, and then encourage and induce EPZ firms to source more goods and services locally by supporting the development of the local supply chain.

Jul-15 Jul-17

Strategic Objective: Improve financial performance. Develop initiatives and programs that increase revenue generation along with optimization of cost6 1. Increased Develop and BD, CIT, Increase AinA to To better focus resources on Oct- Jun-19


No



Objective Owners


End Date

revenue from products and services 2. Reduced cost of operation

Implement portfolio management program for all EPZ product lines

Finance, UTS, Admin

80% of recurrent budget by 2019

result bearing areas, the Authority will review budgeting system to allocate capital budgets and operating expenses to areas which have capacity to produce revenue for the Authority. Each product line will be managed as a portfolio with portfolio holders being responsible for both revenue and cost targets.

14

Develop and implement surplus budget initiative

BD, CIT, Finance, UTS, Admin

Realise a budget surplus every year

This project will ensure EPZA always realises a surplus budget.

Sep-14

Apr-16

Cost optimization initiative

BD, CIT, Finance, UTS, Admin

Cost optimisation initiative implemented

This project will identify and execute opportune areas for cost optimisation and savings so as to reduce operating costs. Greater efficiencies in procurement will be achieved.

Sep-14

Jun-16

Process PerspectiveStrategic Objective: Improve business operating environment. EPZA will improve the business environment by reducing impediments to business operations such as minimizing turnaround time, availing reliable information and improving infrastructure.7 Reduced

Turnaround Time

Set up an effective one-stop shop

OIS, UTS, ICT, Legal, BD

1. One Stop Shop implemented

This initiative seeks to accelerate the establishment of an effective one stop shop to provide a single window for key services to investors at EPZA offices in phase 1, with a virtual OSS network as the second phase

Sep-14

Jun-18

Strategic Objective: Improve investment levels - In order to improve financial performance and increase foreign exchange earnings, EPZA will leverage diverse investment opportunities to grow investment.


No



Objective Owners


End Date

8 1. Increased number of zones in counties currently without zones 2. Increased investment by EPZ firms 3. Increased local investment under EPZ program

Develop and implement a marketing strategy

Finance, BD, UTS, OIS

1. Cumulative investment increased from Ksh 48 million in 2013/14 to Ksh 125 million in 2018/19

This initiative will ramp up strategic marketing through development and implementation of a marketing strategy to attain corporate investment attraction targets.

Aug-14

Jun-19

Develop and implement a land acquisition and zone development program


19 new zones developed by 2019 including zones in counties currently without

This initiative will see 3 New public zones under development by EPZA e.g. in Kitale, Samburu and Nyeri, while Athi River and Kipevu zone capacities are enhanced. Other zones will have been developed by public sector agencies and by the private sector with whom EPZA will collaborate to identify and designate new zones.

Oct-14 Jun-19

Acquisition of funds to support growth of zone infrastructure


1. Funding raised for 3 new EPZA zones by 2019 2. Funding availed for refurbishment of older zones.

Funds for 3 new public zones development and for the refurbishment and expansion of Athi River and Kipevu zones raised in partnership with strategic allies

Sep-14

19-Jun

Establish a textile city


Textile and garment industry investment increased from Ksh 13.5 billion to Ksh 54 billion

This initiative will develop and provide physical infrastructure and facilities suited to the needs of textile and garment producers to reduce the cost of their establishment at Athi River zone.

Sep-14

Dec-18


No



Objective Owners


End Date

in 2018/19Establish a regional centre of excellence for textiles and apparel


Regional Centre of Excellence established and under construction

This initiative seek to make Kenya the hub for capacity building, training and applied research for the textile and apparel industries in East and Central Africa. The centre will serve as a resource of apparel industries management reducing reliance on expatriates using the competitive strengths of academic, research, design, policy and regulatory institutions in eastern Africa as well as those of private sector.

Oct-14 Dec-19

Develop and implement a local investment promotion and support program


35 % of enterprise investment value being wholly Kenyan owned by 2019, up from 29.9% in 2013.

Locally targeted investment promotion and enterprise support program

Aug-14

Dec-18

Strategic Objective: Improved Internal Business Processes - EPZA will evaluate and review its business processes with a view to simplifying, integrating, re-engineering and automating key areas for enhanced performance.9 Improved

business performance

Develop and implement business process restructuring program

GMs, Managers, Finance

1. BPR program completed. 2. Customer satisfaction with EPZA adherence to service charter promises

This initiative seeks to study, review and rationalise the internal business processes in EPZA to create efficiencies and effectiveness, for better service delivery and increased customer satisfaction. Only value adding processes will be retained and

Oct-14

Mar-16


No



Objective Owners


End Date

increased from 75% in 2013/14 to 80% in 2019

internal team work and communication will be enhanced.

Strategic Objective: Improved policy environment. Our efforts to improve the policy environment aim at making Kenya the most competitive investment destination. We will invest resources in policy advocacy to improve the legal and regulatory environment, so as to improve the ease of doing business, reduce the cost of doing business and improve the business operating environment.10 1. Improve ease

of doing business2. Increased access of EPZ products into regional and global markets 3. Transformation of EPZ into SEZ program 4. Development of competitive EPZ incentives

1.Review of Policy Advocacy Program at EPZA

Legal, CEO, PR, OIS, BD

1. Customer satisfaction for ease of doing business up 5 % points by 2019 above 2014 baseline. 2. SEZ program in place by 2019 3. Competitive incentive packages developed

This initiative will improve policy and legal environment for EPZ operations. It will expand Authority's capacity, support for regulatory and policy reform towards the establishment of the complementary SEZ program, and produce competitive incentives for EPZ operation

Mar-15

Jun-19

2. Regional market access initiative

Legal, CEO, PR, OIS, BD

Increased limit for EPZ goods sold on domestic market

This initiative seeks to champion and accelerate the granting of increased access for EPZ goods to the regional and local markets above 20%.

Sep-14

Jun-19

Strategic Objectives: Diversify investment and marketing opportunities - Our business success will depend on developing new products and services, venturing into new markets through strategic promotion and exploitation of existing business opportunities11 1. Diversified

products and services 2. Diversified Market opportunities

Develop and implement a Product Diversification Strategy

UTS, OIS, BD Revenue from new EPZA investment products and services providing Ksh

This project will develop and market new EPZ products and services to meet investors and other client's existing and emerging needs.

Oct-14

Jun-19


No



Objective Owners


End Date

20 million revenue per annum of revenue by 2019

Implement Export Market Diversification Strategy

UTS, OIS, BD Exports from non-textile sector to increase from Ksh 18.0 billion in 2013 to Ksh 45.6 billion in 2019.

This project will enhance market access and market entry for goods and services from EPZs to markets other than USA, and enhance penetration of non-textile goods to existing market opportunities

Sep-15

Jun-19

Strategic Objectives: Build Strategic Partnerships - EPZA will identify value adding stakeholders and actively engage in value propositions to progressively build on dynamic, strategic and mutually beneficial partnerships that enhance and improve the investment policy environment.12 Increased

networks and formal partnerships

Develop and implement a partnership management program

OIS, HS, Finance, UTS, ICT, Legal, PR, BD

10 new MOUs operationalised by 2019

This initiative seeks to leverage strengths and capacities of value adding stakeholders to support the achievement of the Authority's purpose. Relationships developed should be dynamic, strategic and mutually beneficial.

Aug-14

Jun-19

Organisational Capacity (People, Technology and Tools)Strategic Objectives: Improve corporate culture - EPZA will develop and uphold a positive, collaborative and empowering corporate culture to enable staff achieve corporate goals13 Improved

organizational culture

Change management program that will entail: (i) Develop and implement

CEOGMsManagersHR

(i) Effective implementation of change management program

Enhance employee engagement through formal and informal groups

Sep 2014

30th June 2019


No



Objective Owners


End Date

teambuilding strategies (ii) Develop and implement leadership development programs

Strategic Objectives: Optimise human capital - EPZA will enhance and make full use of its human capital to achieve strategic outcomes.14 1. Improved

human resource capacity 2. Improved employee satisfaction

(i) Review, design and implement an effective organizational structure (ii) Review and implement employee motivational strategies

CEOGMsManagersHR

(i) Improved HR capacity (ii) Employee satisfaction rating increased by 5 percentage points between 2014 and 2019

(i) Review strategic roles and reporting relationships (ii) Workforce Planning (iii)Review terms and conditions of service (iv) Develop and implement management development programs

Aug-14

30th June 2019

Strategic Objective: Enhanced knowledge management - EPZA will capture, apply and generate value from employees' creativity and expertise to build business competitive advantage15 Knowledgeable

staffDevelop and implement a knowledge management strategy

GMsManagersHR

(i) Employee Competency index increased by 10%between 2013/14 and 2019

(i) Knowledge will be documented in an electronic data base for everyone to retrieve and use without contacting the person who originally developed it. (intranet) (ii) Knowledge sharing will be achieved through informal conferences, workshops, brainstorming and one-to-one sessions.

Sep-14

30th June 2019

Strategic Objective: Enhance technology - EPZA will acquire and deploy modern technology and tools to increase efficiency and


No



Objective Owners


End Date

effectiveness.16 Increased

Automation Levels

1.Develop and Implement an ICT strategy 2.Develop and Implement an ICT Business Continuity Plan

HR, Finance, Admin, BD, ICT

Automated 100% of Key business processes

Development and implementation of robust ICT strategy to leverage technology for improved efficiency and performance backed up by the development and implementation of an ICT business continuity.

Jul-14

Jun-18

TOTAL


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