Kenya Cracks Down on SEZ Abuse: Major Framework Review to End Real Estate Speculation

Officials argue that speculative real estate projects are exploiting the SEZ programme, potentially undermining its primary purpose of fostering industrial and service growth.

Comprehensive Framework Overhaul Targets Abuse

The Kenyan government has unveiled comprehensive plans to review the Special Economic Zones (SEZs) framework by eliminating tax and housing incentives from developers constructing projects not directly serving employees of enterprises within the zones. This decisive move addresses growing concerns about speculative real estate ventures exploiting SEZ benefits intended for genuine industrial and service development.

According to Investment Promotion Principal Secretary Abubakar Hassan Abubakar, the Business Laws (Amendment) Bill, 2025, will ensure that only staff housing directly tied to SEZ enterprises qualifies for fiscal benefits. The reforms represent the most significant overhaul of Kenya’s SEZ framework since the program’s inception under the Special Economic Zones Act of 2015.

Build the future you deserve. Get started with our top-tier Online courses: ACCA, HESI A2, ATI TEAS 7, HESI EXIT, NCLEX-RN, NCLEX-PN, and Financial Literacy. Let Serrari Ed guide your path to success. Enroll today.

Five-Point Reform Strategy

The Business Laws Amendment Bill sets out five key reforms to guide the enhanced SEZ regime:

1. Eliminating Speculative Housing Benefits: Removing incentives from residential developments not meant for zone employees 2. Tax Stability Clarification: Providing investors with certainty about long-term incentive structures
3. Specialized Training Institution Integration: Admitting educational institutions focused on industrial skills development 4. Business Process Outsourcing Expansion: Opening opportunities for BPO companies to establish operations within SEZs 5. Capital Gains Tax Extension: Broadening exemptions to attract more substantial investments

“We have seen residential buildings coming up in some SEZs, but our position is that such developments should not enjoy SEZ incentives unless they are meant to accommodate employees working within the zone,” Abubakar emphasized during recent policy discussions.

Kifaru Exim: Pioneering SME Integration

The timing of these reforms coincides with the launch of Kenya’s first SME-focused Special Economic Zone – the Kifaru Exim SEZ at Tatu City. This groundbreaking facility represents a strategic shift toward empowering small and medium enterprises through structured access to SEZ benefits.

Located within Tatu City, approximately 20 kilometers north of Nairobi, the Sh500 million facility features nine Grade A warehouses covering 10,165 square meters. Each warehouse offers up to 1,229 square meters of space available on long-term lease at $4.5 per square meter monthly, specifically designed to make SEZ benefits accessible to smaller enterprises.

Speaking during the commissioning ceremony, PS Abubakar noted that the government prioritizes expanding local investor participation through the SEZA Authority. “This investment solves a critical challenge for SMEs by providing ready industrial spaces and linking them to fiscal incentives available in SEZs. It marks a turning point in building our industrial base and creating jobs for Kenyans.”

Substantial Employment Generation Expected

The Kifaru Exim SEZ project is projected to create significant employment opportunities across multiple sectors. Director Kalpesh Shah announced that the facility expects to generate 600 direct jobs and at least 1,800 indirect jobs once fully operational.

“Right now, I have nine warehouses. We want to target SMEs so that each can take up one warehouse, or in some cases, one SME can take more than one. This way, we will have several SMEs occupying them. We are already in discussions with some who have shown interest,” Shah explained during the launch ceremony.

The facility has established a strategic partnership with the SME Support Centre, a pan-African SME support organization, to identify and onboard qualifying enterprises in accordance with SEZA requirements.

Tatu City: Kenya’s SEZ Success Story

The selection of Tatu City as the location for Kenya’s first SME-focused SEZ reflects the success of this pioneering development. Since 2011, Tatu City has evolved into Kenya’s leading private SEZ, hosting over 40 licensed enterprises—representing more than half of Kenya’s SEZ companies.

With total investments reaching $3 billion and creating 15,000 jobs, Tatu City has become a critical anchor for Kenya’s industrial transformation objectives. The development supports Kenya Vision 2030 and other national economic blueprints through its comprehensive approach to industrial development.

Alignment with Vision 2030 Industrial Goals

The SEZ framework reforms directly support Kenya Vision 2030’s objective to transform Kenya into a newly industrializing, middle-income country. The economic pillar of Vision 2030 aims to achieve an average economic growth rate of 10% per annum, positioning Kenya as a globally competitive and prosperous nation.

SEZs play a crucial role in this transformation by offering comprehensive tax incentives, including exemption from excise duty, customs duty, value-added tax, and stamp duty. Licensed SEZ enterprises benefit from advantageous corporate income tax rates of 10% for the first decade and 15% for the subsequent ten years, compared to Kenya’s standard 30% corporate tax rate.

Addressing Historical Challenges

PS Abubakar revealed that the government has implemented 15 major amendments over the past three years to strengthen the SEZ program. These reforms address various challenges that have emerged since the program’s inception, including regulatory gaps that enabled speculative developments to access industrial incentives.

The latest round of proposed amendments will provide further clarity on incentives, expand opportunities for business process outsourcing and specialized training institutions, and ensure predictability for genuine investors. “The President has directed us to keep refining the SEZ framework to make it globally competitive. Stability of incentives, industrial spaces, and access to financing remain our priority areas,” Abubakar emphasized.

Recent Legal Framework Updates

The reforms build upon the Business Laws (Amendment) Act, 2024, which came into effect on December 27, 2024. This legislation introduced several significant amendments to the Special Economic Zones Act, including expanding eligibility for public entities to apply for SEZ developer and operator licenses.

The 2024 amendments also introduced SEZ business service permits, allowing individuals to provide services within SEZs without accessing primary incentives. These permits create opportunities for supporting services while maintaining the integrity of core SEZ benefits for manufacturing and export-oriented enterprises.

Fuel your success with knowledge that matters. Enroll in our Online programs: ACCA, HESI A2, ATI TEAS 7, HESI EXIT, NCLEX-RN, NCLEX-PN, and Financial Literacy. Join Serrari Ed now and take control of your future.

Manufacturing Sector Support

Kenya Association of Manufacturers CEO Tobias Alando welcomed the Kifaru Exim facility, describing it as a major boost that will accelerate industrial growth and provide opportunities for SMEs. The facility offers SMEs access to reliable power, water, efficient logistics, simplified administrative processes, and seamless linkages to larger firms within Tatu City’s ecosystem.

The manufacturing sector’s support reflects broader industry confidence in SEZ reforms. Kenya’s industrial development strategy emphasizes value addition across agricultural, pharmaceutical, and textile sectors, with SEZs serving as competitive manufacturing hubs that enable exploitation of preferential trade agreements with international partners.

Business Process Outsourcing Integration

The amended framework specifically targets expanding Kenya’s BPO sector through SEZ integration. PS Abubakar noted that upcoming reforms will facilitate BPO establishment within SEZs, recognizing this as a key growth sector. “We are amending the law to facilitate BPOs to set up because this is one of the sectors we are targeting,” he explained.

This focus aligns with Kenya’s Vision 2030 strategy to establish Centers of Specialization targeted at various sectors, including Business Process Outsourcing. The integration aims to leverage Kenya’s skilled workforce and strategic location to capture a larger share of global BPO markets.

China-Africa Economic Partnership

The SEZ reforms coincide with Kenya’s negotiation of a new trade deal with China as part of the broader China-Africa Economic Partnership aimed at promoting shared development. This partnership is expected to enhance Kenya’s agricultural exports and expand its outsourcing industry capabilities.

The ministry is simultaneously developing policy and legal frameworks to strengthen chambers of commerce and enhance private sector growth, creating synergies between SEZ development and broader trade facilitation initiatives.

Administrative and Fiscal Incentives

Current SEZ incentives include comprehensive administrative support through SEZA, which operates a one-stop shop providing assistance to new companies. This includes guidance on labor regulations, work permits, import-export logistics, utility connections, and tax authority registration.

Fiscal benefits encompass 100% investment deduction for buildings and machinery, preferential corporate tax rates, reduced withholding tax on non-resident payments, and exemption from various duties and fees. These incentives create an environment where businesses can thrive, focusing resources on innovation and market expansion.

Regulatory Streamlining Efforts

Victor Mageto, head of business development services at the Special Economic Zones Authority, emphasized that Kenya is implementing reforms to streamline regulations, reduce bureaucratic hurdles, and lower the cost of doing business in the zones. These efforts include rapid project approval and licensing through one-stop shop services, with exceptions only for projects requiring environmental licenses.

The regulatory improvements also encompass liberalized foreign exchange regimes, allowing easy repatriation of capital and profits, and access to foreign currency accounts for both domestic and offshore borrowing.

Continental SEZ Strategy Context

Kenya’s SEZ enhancement efforts position the country within a broader continental strategy where African nations leverage SEZs as platforms for structural transformation. Countries including Ethiopia, Nigeria, and Senegal are similarly utilizing SEZs to avoid over-reliance on raw commodity exports and foster inclusive industrialization.

This approach reflects African states’ assertion of agency in defining developmental priorities, representing both economic recalibration and political repositioning within global trade systems. Kenya’s SEZ strategy contributes to territorial cohesion and socio-economic inclusion by addressing structural unemployment, particularly among youth.

Infrastructure and Transportation Networks

The success of Kenya’s SEZ framework depends significantly on transportation networks and logistical hubs. Modern, high-value sectors are particularly time-sensitive, making transportation infrastructure critical for SEZ competitiveness.

Projects such as the Standard Gauge Railway (SGR) are essential for overall SEZ success, connecting zones to ports and major markets. Tatu City’s strategic location provides efficient access to Jomo Kenyatta International Airport and the Port of Mombasa, enhancing its attractiveness for export-oriented enterprises.

Financial Sector Development

The enhanced SEZ framework includes provisions for strengthening chambers of commerce and developing supporting financial infrastructure. The government is developing policy frameworks to ensure adequate financing access for SMEs operating within SEZs, addressing traditional challenges in securing working capital and expansion funding.

These efforts complement existing incentives such as investment deduction allowances and preferential tax rates, creating comprehensive support systems for enterprises across various developmental stages.

Export Market Integration

The reformed SEZ framework emphasizes export market integration through streamlined logistics and customs procedures. All zones maintain resident customs offices for on-site documentation and clearance, with SEZA management including Senior Revenue Officers to assist in customs and excise matters.

This infrastructure supports Kenya’s goal of exploiting preferential trade agreements with international partners, positioning SEZs as gateways for accessing regional and global markets. The emphasis on export orientation aligns with Kenya’s broader economic diversification objectives.

Future Development Projections

Looking ahead, Kenya’s enhanced SEZ framework aims to attract both domestic and foreign investment through improved regulatory clarity and expanded sectoral scope. The government expects the reforms to strengthen Kenya’s position as East Africa’s leading investment destination while creating sustainable employment opportunities.

The integration of SMEs through facilities like Kifaru Exim represents a democratization of SEZ benefits, ensuring that industrial development benefits extend beyond large multinational corporations to include local entrepreneurs and medium-scale enterprises.

The success of these reforms will be measured by increased manufacturing output, enhanced export performance, and sustainable job creation across Kenya’s industrial sectors. As the government continues refining the SEZ framework, the focus remains on balancing investor incentives with genuine economic development outcomes that support Kenya’s Vision 2030 transformation objectives.

Ready to take your career to the next level? Join our Online courses: ACCA, HESI A2, ATI TEAS 7 , HESI EXIT  , NCLEX – RN and NCLEX – PN, Financial Literacy!🌟 Dive into a world of opportunities and empower yourself for success. Explore more at Serrari Ed and start your exciting journey today! ✨

Track GDP, Inflation and Central Bank rates for top African markets with Serrari’s comparator tool.

See today’s Treasury bonds and Money market funds movement across financial service providers in Kenya, using Serrari’s comparator tools.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

26th August, 2025