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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Footloose and tax free: incentive preferences in Kenyan export processing zones
Authors:Rolfe, Robert J.ISNI
Woodward, Douglas P.
Kagira, Bernard
Periodical:South African Journal of Economics
Geographic term:Kenya
Subjects:fiscal policy
export oriented industries
External link:https://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.2004.tb00134.x/pdf
Abstract:An export processing zone (EPZ) offers export-oriented firms a site allowing full import duty exemption, often adding income tax breaks and other incentives as well. Such a strategy could encourage export-oriented development in sub-Saharan Africa. Yet critics often charge that the investments are short-term, or 'footloose'. This paper examines the role of incentive preferences in Kenyan EPZs, which started in 1990. Following a literature review on EPZs in developing countries worldwide and an overview of the common African EPZ incentives, the paper presents the design and results of an experiment conducted in Kenya to test investor preferences for incentives, contrasting those that provide short-term benefits, such as upfront tax holidays with high rates imposed at the end of the period, with long-term incentives such as relatively low rates without tax holidays. The influence of tax holidays was tested along with other commonly offered incentives: infrastructure improvements, local market access, and freedom to locate outside designated zones. The results show that investors prefer an upfront tax holiday and excellent infrastructure. The experiment thus revealed a short-term outlook on the part of investors, which may aggravate rather than alleviate Kenya's unstable labour market and other economic problems. Bibliogr., notes, ref. [ASC Leiden abstract]