Project on Master Plan for Development of Mombasa Special Economic Zone

THE REPUBLIC OF KENYA MINISTRY OF INDUSTRIALIZATION AND ENTERPRISE DEVELOPMENT

PROJECT ON MASTER PLAN FOR DEVELOPMENT OF MOMBASA SPECIAL ECONOMIC ZONE

FINAL REPORT

SEPTEMBER 2015 JAPAN INTERNATIONAL COOPERATION AGENCY (JICA) CONSULTANTS NIPPON KOEI CO., LTD. IL KRI INTERNATIONAL CORPORATION JR TAMANO CONSULTANTS CO., LTD. 15-092 THE REPUBLIC OF KENYA MINISTRY OF INDUSTRIALIZATION AND ENTERPRISE DEVELOPMENT

PROJECT ON MASTER PLAN FOR DEVELOPMENT OF MOMBASA SPECIAL ECONOMIC ZONE

FINAL REPORT

SEPTEMBER 2015 JAPAN INTERNATIONAL COOPERATION AGENCY (JICA) CONSULTANTS NIPPON KOEI CO., LTD. KRI INTERNATIONAL CORPORATION TAMANO CONSULTANTS CO., LTD.

CONVERSION RATE (AT JULY 2015)

1 KES = 1.261 JPY, 1 JPY = 0.793 KES

1 USD = 122.74 JPY, 1 JPY = 0.008147 USD source：JICA HP

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report PROJECT ON MASTER PLAN FOR DEVELOPMENT OF MOMBASA SPECIAL ECONOMIC ZONE

FINAL REPORT

Table of Contents EXECUTIVE SUMMARY ...... ES-1 CHAPTER 1 INTRODUCTION AND CONTEXT ...... 1-1 1.1 Project Background ...... 1-1 1.2 Project Objectives ...... 1-1 1.3 Project Organisation ...... 1-1 1.4 Project Schedule ...... 1-2 1.5 Project Target Area ...... 1-2 1.6 Outline of the Mombasa SEZ Final Report ...... 1-3 CHAPTER 2 ECONOMY AND INDUSTRIAL SECTOR ...... 2-1 2.1 Situation of National Economy ...... 2-1 2.1.1 National Economy and Growth Trend ...... 2-1 2.1.2 Industrial Structure and Trends ...... 2-2 2.2 Population, Demographics, and Labour Force ...... 2-3 2.2.1 Population Growth and Population Distribution among Counties ...... 2-3 2.2.2 Urbanisation ...... 2-4 2.2.3 Employment and Labour Force ...... 2-4 2.3 Overview of Economic Activities ...... 2-6 2.3.1 Agriculture, Livestock, and Fisheries ...... 2-6 2.3.2 Kenya’s Industrial Sector ...... 2-8 2.3.3 Service Sector ...... 2-12 2.4 Investment ...... 2-14 2.4.1 Investment Performance ...... 2-14 2.4.2 Foreign Investment Trend in Kenya ...... 2-16 2.5 Foreign Trade ...... 2-18 2.5.1 Foreign Trade Structure ...... 2-18 2.5.2 Major Trading Goods and Destination ...... 2-19 2.6 Kenya’s Position in the East and South African Region ...... 2-20 2.6.1 Regional Economic Blocs and Kenya ...... 2-20 2.6.2 Trend of the National Economies of Neighbouring Countries ...... 2-22

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 2.6.3 Kenya and the Regions’ Demand Structure and Size ...... 2-24 2.6.4 Trade with Neighbouring Countries and Kenya’s Competitiveness ...... 2-25 2.7 Situation of Mombasa and Its Industrial Development ...... 2-26 2.7.1 Demographics of Mombasa County ...... 2-26 2.7.2 Mombasa’s Industrial Base: Structure and Resources ...... 2-29 2.7.3 Trade and the Port of Mombasa ...... 2-33 2.8 Outline of National and County Development Planning ...... 2-35 2.8.1 National Development Plan and Relevant Legal Framework ...... 2-35 2.8.2 County Development in Mombasa County ...... 2-38 2.8.3 Past Development Plan for the Dongo Kundu Area ...... 2-40 2.8.4 Development Plan for the Dongo Kundu Area stated in Vision 2030 ...... 2-41 2.9 Industrial Development Policy Framework...... 2-42 2.9.1 Past and Current Industrial Development Policy Initiatives ...... 2-42 2.9.2 Trade Policy ...... 2-46 2.9.3 Current Policy Tools for Investment and Export Promotion ...... 2-48 CHAPTER 3 THE LEGAL FRAMEWORK ...... 3-1 3.1 EAC and National Level Approaches ...... 3-1 3.1.1 Pre-Conditions for Analysis ...... 3-1 3.1.2 Historical Background of the EAC Customs Union ...... 3-1 3.1.3 Harmonisation of EAC Partner States Incentives Schemes ...... 3-2 3.2 Establishment of EAC Level SEZ Framework ...... 3-4 3.2.1 EAC Customs Management Act, Regulations and SEZ Policy Framework ...... 3-4 3.2.2 EAC Regulations for Each SEZ Scheme ...... 3-5 3.2.3 Challenges from the existing Legal Framework ...... 3-9 3.3 Establishment of a National-Level SEZ Framework ...... 3-10 3.3.1 Status of Enactment and Outline of SEZ Bill ...... 3-10 3.3.2 The Kenya PPP Act ...... 3-12 CHAPTER 4 INVESTMENT CLIMATE AND DEMAND ...... 4-1 4.1 Investment Climate in Kenya and Mombasa ...... 4-1 4.1.1 Cross-Country Comparison of Business Environment in Kenya ...... 4-1 4.2 Results of the Investment Demand Survey ...... 4-3 4.2.1 Purpose and Methodology ...... 4-3 4.2.2 Results of the Questionnaire Survey ...... 4-4 4.2.3 Results of the Interview Survey ...... 4-8 4.3 Other Literatures: Kenya Business Environment Survey Report 2014 (KPMG) ..... 4-8 4.4 Conclusion ...... 4-9 CHAPTER 5 THE INDUSTRIAL DEVELOPMENT FRAMEWORK FOR SEZ DEVELOPMENT ...... 5-1

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 5.1 Economic and Industrial Development Framework ...... 5-1 5.1.1 Long-Term Projections of Global Economy Relevant to Kenya’s Economic Development Framework ...... 5-1 5.1.2 Kenya’s Economic and Industrial Development Framework ...... 5-2 5.1.3 Trial Projection of Labour and Land: The Manufacturing Sector’s Demand Forecast for Industrial Park ...... 5-8 5.2 Potential Industries for Mombasa SEZ ...... 5-11 5.2.1 Methodology ...... 5-11 5.2.2 Establishing the List of Potential Industries Based on the National Policy Context 5-12 5.2.3 Challenges to Increased Investment in Mombasa ...... 5-14 5.2.4 Opportunities of Industrial Development in Mombasa SEZ ...... 5-16 5.2.5 Categorisation of Strategic Industries for Mombasa SEZ ...... 5-24 5.2.6 Priority List of Potential Industries for Promotion in Mombasa SEZ ...... 5-24 5.3 Issues and Obstacles for Investment Especially to Priority Industries ...... 5-27 5.4 Anchor Industries for Mombasa SEZ ...... 5-27 CHAPTER 6 CURRENT CONDITIONS OF MOMBASA AND DONGO KUNDU AREA .. 6-1 6.1 Industrial Development Trend in Mombasa ...... 6-1 6.2 Topographic Conditions of Dongo Kundu Area ...... 6-2 6.2.1 Outline of the Basic Data ...... 6-2 6.2.2 Site Surveys ...... 6-2 6.2.3 Bathymetric Conditions ...... 6-3 6.3 Existing Infrastructure related to Dongo Kundu ...... 6-5 6.3.1 Existing Road Network and Transportation ...... 6-5 6.3.2 Existing Mombasa Port ...... 6-8 6.3.3 Existing Power Supply System ...... 6-9 6.3.4 Existing Water Supply System ...... 6-12 6.3.5 Existing Drainage and Sewerage Systems ...... 6-14 6.3.6 Existing Solid Waste Management ...... 6-17 6.3.7 Existing Telecommunication System ...... 6-19 6.4 Land Use of the Dongo Kundu Area ...... 6-21 6.4.1 Analysis on Land Characteristics ...... 6-21 6.4.2 Relevant Development Projects ...... 6-24 CHAPTER 7 THE PROPOSED SEZ DEVELOPMENT PLAN ...... 7-1 7.1 SEZ Development in Kenya ...... 7-1 7.1.1 National Policy Context ...... 7-1 7.1.2 Strategy and Key to Success ...... 7-1 7.2 Conceptual Design of Mombasa SEZ at Dongo Kundu ...... 7-3

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 7.2.1 Overall Goal ...... 7-3 7.2.2 Specific SEZ Development Goals ...... 7-4 7.2.3 Development Concept ...... 7-5 7.3 Land Use Plan ...... 7-6 7.3.1 Land Use Function to be introduced in the SEZ ...... 7-6 7.3.2 Land Use Alternative ...... 7-7 7.3.3 Evaluation of Alternatives ...... 7-12 7.3.4 Land Use Plan ...... 7-13 7.3.5 Phasing Plan ...... 7-13 7.4 Development Framework ...... 7-16 7.5 Infrastructure Development ...... 7-16 7.5.1 Land Reclamation Plan ...... 7-16 7.5.2 Road Network and Transportation Plan...... 7-19 7.5.3 Port Facility Plan...... 7-29 7.5.4 Power Supply System Plan ...... 7-38 7.5.5 Water Supply System Plan ...... 7-50 7.5.6 Drainage System Plan ...... 7-62 7.5.7 Sewerage System Plan ...... 7-69 7.5.8 Solid Waste Management Plan ...... 7-74 7.5.9 Telecommunication System Plan ...... 7-78 7.6 Construction Cost Estimation ...... 7-82 7.6.1 Condition of the Estimation ...... 7-82 7.6.2 Construction Cost ...... 7-82 CHAPTER 8 ENVIRONMENTAL AND SOCIAL CONSIDERATIONS ...... 8-1 8.1 Overall Progress ...... 8-1 8.2 Environmental and Social Baselines ...... 8-1 8.3 Alternative Analysis for Detailed Land Use ...... 8-3 8.4 Potential Environmental and Social Impacts ...... 8-8 8.5 Mitigation Measures ...... 8-10 8.6 Framework for Environmental and Social Management ...... 8-10 8.7 Stakeholder Engagement ...... 8-12 8.8 Recommendations of the SEA ...... 8-14 CHAPTER 9 THE IMPLEMENTATION PLAN AND PROPOSED MANAGEMENT FRAMEWORK ...... 9-1 9.1 Implementation Plan ...... 9-1 9.1.1 Implementation Structure ...... 9-1 9.1.2 Implementation Schedule ...... 9-4 9.2 Economic Analysis ...... 9-6

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 9.2.1 Objective of Economic Analysis ...... 9-6 9.2.2 Conditions ...... 9-6 9.2.3 Project Implementation Costs ...... 9-6 9.2.4 Potential Benefits of the SEZ Development ...... 9-6 9.2.5 Annual Benefit and Cost from Project Implementation ...... 9-7 9.2.6 Results of the Economic Analysis ...... 9-8 9.3 Financial Analysis ...... 9-9 9.3.1 Objective of the Financial Analysis ...... 9-9 9.3.2 Financial Viability ...... 9-9 9.4 The Necessity of PPPs ...... 9-9 9.5 Organisational Structure for Operations and Management ...... 9-11 9.5.1 SEZ Authority and One-Stop Centre ...... 9-11 9.5.2 SEZ Developer, Operator and Enterprise ...... 9-12 CHAPTER 10 RECOMMENDATIONS AND CONCLUSIONS ...... 10-1 10.1 Preconditions for the Success of the SEZ Project ...... 10-1 10.2 Recommendations on Specific Issues ...... 10-2 10.2.1 Implementation Approach ...... 10-2 10.2.2 Land Use and Design Preparation ...... 10-3 10.2.3 Environmental and Social Considerations ...... 10-3 10.3 Critical Success Factors ...... 10-3 10.4 Conclusions ...... 10-4 APPENDIX I…………………………………………………………………………………………..... I-1 APPENDIX II………………………………………………………………………………………….. II-1

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report List of Figures Figure 1.1.1: Location of the SEZ ...... 1-3 Figure 2.1.1: Real GDP and Growth Rate in Kenya ...... 2-1 Figure 2.1.2: Real GDP per Capita ...... 2-2 Figure 2.1.3: Sector Share of the GDP (2014) ...... 2-2 Figure 2.1.4: GDP and Sectoral Share and Comparison between 2006 and 2014 ...... 2-3 Figure 2.2.1: Composition of the Labour Force (2014) ...... 2-5 Figure 2.2.2: Employment by Sector in Nairobi and Mombasa (2009) ...... 2-5 Figure 2.3.1: Growth Rates of Outputs of Industrial Sectors ...... 2-8 Figure 2.3.2: Share of Manufacturing Gross Value Addition per Activity ...... 2-9 Figure 2.3.3: Number of Employees in the Manufacturing Sector in Major Urban Areas ...... 2-12 Figure 2.4.1: Comparison of Gross Fixed Capital Formation of Kenya and Peer Countries ...... 2-14 Figure 2.4.2: Sector Share of Total Registered Value of Capital for Investment ...... 2-15 Figure 2.4.3: Employment Creation by Sector ...... 2-15 Figure 2.4.4: Cumulative Investment Value to EPZ per Industry...... 2-16 Figure 2.4.5: Value of Investment to EPZ per Industry ...... 2-16 Figure 2.4.6: Trend of Inward FDI Flow and Stocks in Kenya ...... 2-17 Figure 2.4.7: FDI Inflow in the Three EAC Countries ...... 2-17 Figure 2.4.8: Trend of Outward FDI Flow and Stock in Kenya ...... 2-18 Figure 2.5.1: Trend of Export and Import in Kenya ...... 2-19 Figure 2.5.2: Major Trade Partners and Their Share (2012) ...... 2-20 Figure 2.6.1: Network of Plurilateral Groupings in Africa and Middle East ...... 2-21 Figure 2.6.2: GDP of Kenya and Neighbouring Economies ...... 2-23 Figure 2.6.3: Composition of GDP per Industrial Sector of COMESA Members and Tanzania (2012) ...... 2-23 Figure 2.6.4: Manufacturing Value Added and the Ratio to GDP of Selected Eastern and Southern African Countries ...... 2-24 Figure 2.6.5: Comparison of Household Consumption ...... 2-24 Figure 2.6.6: Composition of Kenya’s Household Individual Consumption ...... 2-25 Figure 2.6.7: Trade Volume of Kenya and Neighbouring Countries ...... 2-25 Figure 2.6.8: Ratios of Export and Import toward and from EAC and COMESA to Kenya’s Total Export/Import ...... 2-26 Figure 2.7.1: Administrative Constituencies in Mombasa County ...... 2-27 Figure 2.7.2: Composition of Religious Beliefs ...... 2-28 Figure 2.7.3: Breakdown of Number of Employee of Establishments with More than Ten Employees in Mombasa County ...... 2-30

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Figure 2.7.4: Direction of the Cargo Handled by the Port of Mombasa and the Jomo Kenyatta International Airport ...... 2-33 Figure 2.8.1: Dongo Kundu Port and Industrial Development Plan by Van Houten in 1989 ...... 2-41 Figure 3.1.1: Decomposition of SEZ Incentives ...... 3-2 Figure 3.2.1: Regulations for Industrial Park ...... 3-7 Figure 3.3.1: Comparison of Customs Duties at Cases of CCA and Non-CCA ...... 3-8 Figure 4.1.1: Kenya’s Rank in Doing Business 2014 and 2015 ...... 4-1 Figure 4.1.2: Barriers for Acquiring Land by Foreign Investors ...... 4-2 Figure 4.2.1: Strength of Mombasa SEZ ...... 4-5 Figure 4.2.2: Required Conditions for the Success of Mombasa SEZ ...... 4-6 Figure 4.2.3: Infrastructure Requirement ...... 4-7 Figure 5.1.1: Long-Term GDP Growth Rate Projection up to 2050 ...... 5-1 Figure 5.1.2: Share in World Exports by Industry ...... 5-2 Figure 5.1.3: Population Growth and Urbanisation Projection up to 2030 ...... 5-3 Figure 5.1.4: Flow of Goods and Industrial Activities in Mombasa and Nairobi ...... 5-6 Figure 5.1.5: Composition of Industries of Asian and African Counterparts (2014) ...... 5-7 Figure 5.1.6: Projection of the Share of Manufacturing, Value Added in GDP Based on the Hypothesis ...... 5-8 Figure 5.2.1: Flow of Selecting Potential Industries ...... 5-12 Figure 5.2.2: Simplified Shape of Value Chain ...... 5-16 Figure 5.2.3: Simplified Tea Value Chain and the Role of Mombasa ...... 5-17 Figure 5.2.4: Kenya’s Number of Newly Registered Vehicles and Motorcycles (left) and Import of Passenger Vehicles in Uganda and Tanzania (right) ...... 5-20 Figure 5.2.5: Simplified Motor Vehicle Value Chain and the Role of Mombasa...... 5-20 Figure 5.2.6: Kenya’s Import of Iron and Steel Products (2010) ...... 5-22 Figure 5.2.7: Simplified Iron and Steel and Metal Fabrication Vehicle Value Chain and the Role of Mombasa ...... 5-22 Figure 6.1.1: Locations of Current EPZs/Industrial Parks in the Mombasa Area ...... 6-1 Figure 6.2.1: Structures on Satellite Image...... 6-2 Figure 6.2.2: Kayas on Contour Map ...... 6-2 Figure 6.2.3: Reference Station ...... 6-3 Figure 6.2.4: Erected Tide Pole ...... 6-3 Figure 6.2.5: Bathymetry for Western Part of Surveyed Area ...... 6-4 Figure 6.2.6: Bathymetry for Eastern Part of Surveyed Area ...... 6-4 Figure 6.2.7: Sub-bottom Profiling ...... 6-5 Figure 6.3.1: Current Road Network and Future Mombasa Southern Bypass Roads .... 6-6 Figure 6.3.2: Condition of Major Accesses ...... 6-6

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Figure 6.3.3: Condition of Road within the SEZ ...... 6-6 Figure 6.3.4: Location of U-turn Bay ...... 6-7 Figure 6.3.5: Proposed Design of Dongo Kundu U-turn Bay ...... 6-7 Figure 6.3.6: Location of Mombasa Port ...... 6-8 Figure 6.3.7: Layout of the Second Container Terminal ...... 6-9 Figure 6.3.8: Existing Layout of Power Transmission Line System ...... 6-11 Figure 6.3.9: Existing Single Line of Power Supply System in SEZ ...... 6-12 Figure 6.3.10: Existing Water Supply Situation...... 6-13 Figure 6.3.11: Current Channel in the Field ...... 6-16 Figure 6.3.12: Current Culvert in the Field ...... 6-16 Figure 6.3.13: Current Condition of Drainage (Existing Bottom of Valleys) ...... 6-16 Figure 6.3.14: Location of Existing WWTP...... 6-17 Figure 6.3.15: Location of Dumping Sites and Garbage Collection Area in Mombasa County ...... 6-19 Figure 6.3.16: Internet Submarine Cable System in Kenya ...... 6-20 Figure 6.4.1: Limited Possible Development Area ...... 6-22 Figure 6.4.2: Existing Structures ...... 6-23 Figure 6.4.3: Distribution of Kaya ...... 6-23 Figure 6.4.4: Distribution of Mangroves in the Northern Coast of the SEZ ...... 6-23 Figure 7.1.1: Necessity of SEZ Development in Kenya ...... 7-1 Figure 7.1.2: Key Success Factors ...... 7-2 Figure 7.2.1: Overall Goal of SEZ Development in Kenya ...... 7-4 Figure 7.2.2: Specific Development Goals of the SEZ ...... 7-5 Figure 7.2.3: Component of the SEZ Development ...... 7-6 Figure 7.3.1: Multi-function Land Use in Spear-heading SEZ in the World ...... 7-6 Figure 7.3.2: Expandable Part of Power Plant Area ...... 7-8 Figure 7.3.3: Land Use Plan of the SEZ (Alternative 1) ...... 7-10 Figure 7.3.4: Land Use Plan of the SEZ (Alternative 2) ...... 7-11 Figure 7.3.5: Land Use Plan by Phased Development ...... 7-15 Figure 7.5.1: Cut-Fill Plan ...... 7-18 Figure 7.5.2: Projection of Traffic Volume on Internal Arterial Road of the SEZ ...... 7-23 Figure 7.5.3: Road System Plan ...... 7-25 Figure 7.5.4: Arterial Road connecting Port and Mombasa Southern Bypass Road ..... 7-26 Figure 7.5.5: Main Road inside Free Trade Zone and Industrial Park ...... 7-26 Figure 7.5.6: Sub-main Road in Free Trade Zone and Industrial Park ...... 7-27 Figure 7.5.7: Main Road in Tourism Park ...... 7-27 Figure 7.5.8: Main Road in Residential Area ...... 7-27 Figure 7.5.9: Cross Section of Flyover Bridge (U-turn Bay) ...... 7-28

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Figure 7.5.10: Location of New U-turn Bay Inside Proposed by JICA-KEI ...... 7-28 Figure 7.5.11: Flowchart of Demand Forecast ...... 7-29 Figure 7.5.12: Layout of the New Terminal ...... 7-33 Figure 7.5.13: Dredging Area and Dredged Material Disposal Sites ...... 7-34 Figure 7.5.14: Dredging Area for Berth D1 ...... 7-35 Figure 7.5.15: Dredging Area for Berth D2 ...... 7-35 Figure 7.5.16: Typical Cross Section for New Wharf ...... 7-37 Figure 7.5.17: Typical Cross Section for Interlocking Concrete Block Pavement ...... 7-37 Figure 7.5.18: Ship-to-Shore Gantry Crane ...... 7-38 Figure 7.5.19: Rubber-tyred Gantry Crane ...... 7-38 Figure 7.5.20: Power Supply System in the SEZ with LNG Power Plant ...... 7-41 Figure 7.5.21: Power Transmission Line from Rabai Substation to the SEZ Substation ...... 7-43 Figure 7.5.22: Single Diagram of Substation ...... 7-44 Figure 7.5.23: 33 kV Overhead Distribution System ...... 7-45 Figure 7.5.24: 33 kV Underground Distribution System ...... 7-45 Figure 7.5.25: Layout of 33 kV Distribution Line Plan ...... 7-47 Figure 7.5.26: Typical Distribution Line Arrangement in the Road ...... 7-49 Figure 7.5.27: Location of Mwache Dam Water Supply System, Mombasa Southern Bypass Road and SEZ Water Transmission ...... 7-54 Figure 7.5.28: Connection Point between Mwache Transmission and SEZ Transmission ...... 7-55 Figure 7.5.29: Location of Catchment Area and Rainwater Storage Pond...... 7-58 Figure 7.5.30: General Layout of the SEZ Water Supply System Plan ...... 7-60 Figure 7.5.31: Monthly Rainfall in Mombasa (Average for Ten Years) ...... 7-63 Figure 7.5.32: Rainfall Intensity ...... 7-64 Figure 7.5.33: Drainage Catchment Area ...... 7-67 Figure 7.5.34: Drainage System Plan ...... 7-68 Figure 7.5.35: Sewer Pipe Network for the Industrial Park ...... 7-74 Figure 7.5.36: Solid Waste Management System for the SEZ ...... 7-77 Figure 7.5.37: Method of Cable Connection Between Switch Station and Enterprise .. 7-80 Figure 7.5.38: Telecommunications Conduit Pipe System Plan ...... 7-81 Figure 7.6.1: The SEZ Land Use Plan ...... 7-85 Figure 7.6.2: The SEZ Phased Development Plan...... 7-86 Figure 8.2.1: Social and Environmental Baseline in Dongo Kundu ...... 8-3 Figure 8.3.1: Land Use Plan 1 ...... 8-6 Figure 8.3.2: Land Use Plan 2 ...... 8-7 Figure 9.1.1: Proposed Implementation Structure for the SEZ Development ...... 9-2

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Figure 9.1.2: Tentative Proposed Area for Category A Development ...... 9-3 Figure 9.1.3: Proposed Implementation Schedule ...... 9-5

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report List of Tables Table 1.1.1: JCC Members (Listed on the RD) ...... 1-2 Table 2.2.1: Population and Annual Average Growth Rate in Census Years ...... 2-3 Table 2.2.2: Population and Annual Average Growth Rate in Recent Years ...... 2-4 Table 2.2.3: County Demographics in 2009 ...... 2-4 Table 2.2.4: Long-Term Population and Urbanisation Projection and Economically Active Population in Kenya ...... 2-6 Table 2.3.1: Kenya’s Marketed Agricultural Production, Composition, and Growth ...... 2-6 Table 2.3.2: Value of the Export of Meat and Meat Preparations ...... 2-7 Table 2.3.3: Kenya’s Fisheries Sector Composition ...... 2-7 Table 2.3.4: Size of Production, Ratio of Imported Materials in the Raw Materials Degree of Value Addition of Manufacturing Activities ...... 2-10 Table 2.3.5: Value of Sales per Industrial Activity and Percentage of Sales per Destination ...... 2-11 Table 2.3.6: Kenya’s Tourism Industry’s Projection and Impact on the Economy ...... 2-13 Table 2.5.1: Major Exporting Goods of Kenya and its Traded Values in 2010 ...... 2-19 Table 2.6.1: Kenya’s Export Value of Plastic and Iron and Steel Products and Their Share of EAC and COMESA ...... 2-26 Table 2.7.1: Mombasa County Demographics in 2009 by Constituency ...... 2-28 Table 2.7.2: Population Growth in Mombasa County ...... 2-29 Table 2.7.3: Establishments with More than Ten Employees per Industry in Mombasa County ...... 2-29 Table 2.7.4: Sectors with Largest Employment ...... 2-31 Table 2.7.5: Size of Wholesale Sector (Number of Employees) in Mombasa and Nairobi ...... 2-31 Table 2.7.6: Major Agricultural Products in Mombasa, Taita Taveta, Kwale, and Kilifi ...... 2-32 Table 2.7.7: Trade Volume of Kenya and Volume Handled by the Port of Mombasa ..... 2-34 Table 2.7.8: Major Export and Import Commodities Handled by the Port of Mombasa 2-34 Table 2.7.9: Value of Major Commodities Exported from the Port of Mombasa ...... 2-34 Table 2.7.10: Value of Major Commodities Imported from the Port of Mombasa ...... 2-35 Table 2.8.1: SWOT Matrix of Mombasa City County ...... 2-39 Table 2.9.1: Priority Industries in the National Industrialisation Policy and Development Time Frame ...... 2-44 Table 2.9.2: Fiscal Incentives for Investment Promotion ...... 2-48 Table 2.9.3: Key Performance Data of EPZ ...... 2-49 Table 2.9.4: EPZ Geographical Distribution and Performance per Location ...... 2-50 Table 3.1.1: Rules and Regulations for SEZ...... 3-1

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 3.1.2: SEZ Incentives in Tanzania and Rwanda ...... 3-3 Table 3.2.1: Legal Framework for SEZ within Various EAC Laws...... 3-4 Table 3.2.2: Summary of Five approved Schemes ...... 3-6 Table 3.3.1: Arrangement of Clauses for SEZ Bill 2015 ...... 3-10 Table 4.1.1: Top 10 African FDI Destinations since 2003...... 4-2 Table 4.1.2: Top 10 African FDI destinations 2011 and 2012 ...... 4-2 Table 4.1.3: Comparison of Cost of Doing Business ...... 4-3 Table 4.1.4: Outline of the Investment Demand Survey ...... 4-4 Table 5.1.1: Employment to Population Ratio ...... 5-3 Table 5.1.2: Urban and Rural Population and Labour Force Projection in 2018, 2025 and 2030 ...... 5-3 Table 5.1.3: Growth Target of Kenya Vision 2030 Second Mid-Term Plan 2013-2017 .... 5-4 Table 5.1.4: GDP and Per Capita GDP Projection for 2018, 2025, and 2030 ...... 5-5 Table 5.1.5: OECD-DAC ODA Recipient Category and Per Capita GDP Comparing with Kenya ...... 5-5 Table 5.1.6: Projection of the Compounded Average Growth Rate of the Manufacturing Sector up to 2030 ...... 5-8 Table 5.1.7: The Elasticity of Private Wage Employment of the Manufacturing Sector .5-9 Table 5.1.8: Average Growth Rate of Wage Employment ...... 5-9 Table 5.1.9: Projection of the Private Wage Employment (‘000) ...... 5-9 Table 5.1.10: Workers per Unit Area for Various Industries ...... 5-9 Table 5.1.11: Composition of the Manufacturing, Value Added ...... 5-10 Table 5.1.12: Necessary Land Area to Accommodate the Projected Manufacturing Growth ...... 5-10 Table 5.1.13: Distribution of Manufacturing Employees in Major Cities and Share ..... 5-11 Table 5.1.14: Distribution of Necessary Land to Accommodate the Projected Manufacturing Growth ...... 5-11 Table 5.1.15: Population Projection of Nairobi and Mombasa in 2020 and 2025 ...... 5-11 Table 5.2.1: Industrial Development, Investment and Trade Promotion Policy Target 5-13 Table 5.2.2: Challenges, Impediments and Impacts for Investment in Kenya and Mombasa ...... 5-14 Table 5.2.3: Charges of the Port in East Africa ...... 5-15 Table 5.2.4: Road Freight Rates Comparisons from Dar-es-Salaam and Mombasa ports to various Destinations in Eastern Africa (in USD) ...... 5-15 Table 5.2.5: Indicative Rates for Transporting Container using Railway System ...... 5-16 Table 5.2.6: Export of Kenya’s Iron and Steel Products ...... 5-21 Table 5.2.7: Types of Industries to be Located in Mombasa ...... 5-24 Table 5.2.8: Factors for Selecting Potential Industries ...... 5-24

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 5.2.9: Priority List of the Industries for Mombasa SEZ ...... 5-26 Table 6.1.1: List of Current EPZs/Industrial Parks in Mombasa Area ...... 6-1 Table 6.3.1: Schedule for Mombasa Southern Bypass Road Project ...... 6-7 Table 6.3.2: Features of the Second Container Terminal ...... 6-9 Table 6.3.3: Power Demand and Supply in the Coast Region ...... 6-9 Table 6.3.4: Sales of Electricity by Category in Coast Region ...... 6-10 Table 6.3.5 Power Generating Facilities ...... 6-10 Table 6.3.6: Existing 33/11 kV Substation for the Surrounding Area of SEZ ...... 6-12 Table 6.3.7: Present Water Supply Capacity ...... 6-13 Table 6.3.8: Water Source Quality and Kenyan Standard ...... 6-14 Table 6.3.9: Climatological Information in 2013 ...... 6-14 Table 6.3.10: Past Climatological Information (1970-1990 Monthly Average) ...... 6-14 Table 6.3.11: Wind Force and Direction in 2013 ...... 6-15 Table 6.3.12: International Internet Usage and Available Bandwidth ...... 6-21 Table 6.3.13: Internet Service in Kenya ...... 6-21 Table 6.4.1: Land Use Alternatives ...... 6-25 Table 7.3.1: Land Use Alternatives ...... 7-8 Table 7.3.2: Comparison of Land Use Area between Alternative Plans ...... 7-9 Table 7.3.3: Comparison of Earthworks Volume by Alternative Plans ...... 7-12 Table 7.3.4: Comparative Analysis of Land Use Alternatives ...... 7-12 Table 7.3.5: Detailed Land Use Plan of Alternative 1 (Recommended Land Use Plan) 7-13 Table 7.3.6: Land Use Plan by Phased Development ...... 7-14 Table 7.4.1: Development Framework for the SEZ ...... 7-16 Table 7.5.1: Cut-Fill Quantity ...... 7-17 Table 7.5.2: Projection of Generation/Attraction Number of Truck Traffic to/from the SEZ ...... 7-19 Table 7.5.3: Projection of Generation/Attraction Number of Mini-Buses and Passenger Cars to/from the SEZ ...... 7-20 Table 7.5.4: Traffic Volume of Commuter Traffic (Converted to pcu) ...... 7-20 Table 7.5.5: Projection of Traffic Volume for Cargo and Commuting Purpose ...... 7-21 Table 7.5.6: Traffic Volume Capacity by Road Type ...... 7-22 Table 7.5.7: Summary of Road Types ...... 7-24 Table 7.5.8: Socio-Economic Framework in the SEZ Project ...... 7-30 Table 7.5.9: Future Demand of General Cargo ...... 7-31 Table 7.5.10: Full (Loaded) Container Demand...... 7-31 Table 7.5.11: Total Container Demand ...... 7-32 Table 7.5.12: Port Facilities for D1 ...... 7-36 Table 7.5.13: Port Facilities for D2 ...... 7-36

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.5.14: Power Demand Forecast of the SEZ ...... 7-40 Table 7.5.15: Power Sources for the Surrounding Area of the SEZ ...... 7-42 Table 7.5.16: Comparison of Overhead Line and Underground Cable ...... 7-46 Table 7.5.17: Specification of Distribution Line Conductor ...... 7-46 Table 7.5.18: Summary of Power Supply Facilities ...... 7-49 Table 7.5.19: Water Consumption Rates ...... 7-52 Table 7.5.20: Water Demand Projection ...... 7-53 Table 7.5.21: Design Water Flow ...... 7-53 Table 7.5.22: Summary of the SEZ Transmission Pipeline ...... 7-56 Table 7.5.23: Direct Construction Cost ...... 7-57 Table 7.5.24: Borehole System Component ...... 7-58 Table 7.5.25: Direct Construction Cost ...... 7-59 Table 7.5.26: Comparison of Alternative Water Sources ...... 7-59 Table 7.5.27: Summary of SEZ Water Supply Scheme ...... 7-61 Table 7.5.28: Monthly Rainfall in Mombasa (2004-2013) ...... 7-62 Table 7.5.29: Design Condition of Drainage System ...... 7-63 Table 7.5.30: Principal Features of Drainage System ...... 7-65 Table 7.5.31: Outline of Drainage System Plan ...... 7-66 Table 7.5.32: List of Drainage System Facilities ...... 7-69 Table 7.5.33: Estimated Amount of Wastewater (Volume of Average per Day) ...... 7-69 Table 7.5.34: Standards for Effluent Discharge into the Environment ...... 7-71 Table 7.5.35: List of Sewer Pipes for the Industrial Park ...... 7-73 Table 7.5.36: Solid Waste Generation ...... 7-75 Table 7.5.37: Demarcation Works for Telecommunication System ...... 7-78 Table 7.5.38: Telecommunication Demand Forecast ...... 7-79 Table 7.5.39: Installed Conduit Pipe Number ...... 7-80 Table 7.5.40: Summary of Telecommunication Facilities ...... 7-82 Table 7.6.1: Construction Cost for Public Sector Infrastructures ...... 7-83 Table 7.6.2: Summary of Construction Cost by Zone ...... 7-84 Table 8.1.1: Key Milestones of the SEA Study ...... 8-1 Table 8.3.1: Comparison of Land Use Plan ...... 8-4 Table 8.3.2: Comparison of Land Use Area by Alternative Plan...... 8-5 Table 8.4.1: Summary of Predicted Impacts ...... 8-9 Table 8.5.1: Summary of Mitigation Measures ...... 8-10 Table 8.7.1: Summary of Stakeholder Consultations and Information Disclosure ...... 8-13 Table 8.7.2: Response to the Major Concerns from Stakeholders ...... 8-13 Table 9.2.1: Breakdown of the Project Implementation Costs ...... 9-6 Table 9.2.2: Project Implementation Schedule ...... 9-7

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 9.2.3: Project Economic Cash Flow ...... 9-8 Table 9.2.4: Results of the Economic Cash Flow Analysis ...... 9-8 Table 9.3.1: Financial Components of the SPV/Contracting Authority ...... 9-9 Table 9.3.2: Results of the Financial Analysis for the SEZ Developer (SPV) ...... 9-9 Table 9.4.1: Comparison of F/S between Government and Investor ...... 9-10 Table 9.5.1: Qualifications of SEZ Developer and Operator ...... 9-13 Table 9.5.2: Rights and Obligations of SEZ Developer and Operator ...... 9-14 Table 9.5.3: Qualifications of SEZ Enterprise ...... 9-15 Table 9.5.4: Rights and Obligations of SEZ Enterprise...... 9-15

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report List of Abbreviations ACP African Caribbean and Pacific EPZ Export Processing Zone Countries AEWA African Eurasian Water Bird EPZA Export Processing Zone Authority Agreement AfDB African Development Bank ERC Electricity Regulation Commission AGO Automotive Gas Oil ESMP Environment and Social Management Plan AGOA African Growth and Opportunity EU European Union Act AIS Air-Insulated Switchgear FAO Food and Agriculture Organization avg. Average FCC Fuel cost Charge B/C Benefit-Cost Ratio FDI Foreign Direct Investment BOO Build Own Operate FERF Foreign Exchange Rate Fluctuation CCA Custom Controlled Area FIRR Financial Internal Rate of Return CCK Communications Commission of FISIM Financial Intermediation Services Kenya Indirectly Measured CD Customs Duty FP Free Port CET Common External Tariff FRH Fundamental Right Holder CIDP County Integrated Development F/S Feasibility Study Plan CIP Census of Industrial Production FTA Free Trade Agreement COMESA Common Market for Eastern and FTZ Free Trade Zone Southern Africa CWSB Coast Waster Supply Board GB Gigabyte DAC Development Assistance Gbps Gigabit per second Committee DAWF Daily Average Water Flow GDP Gross Domestic Product DC Distribution Centre GIS Geographical Information System DCIP Ductile Cast Iron Pipe GOJ Government of Japan D/D Detailed Design GOK Government of Kenya DFQF Duty-Free, Quota-Free GSP Generalized System of Preference DMCC Dubai Multi Commodity Center GWh Gigawatt-hours DMWF Daily Maximum Water Flow HCDA Horticultural Crops Development Agency DWT Dead Weight Tonnage HDPE High Density Polyethylene Pipe EAC East African Community HMWF Hourly Maximum Water Flow EACCMA East African Community Custom IA Inflation Adjustment Management Act EASSY The Eastern African Submarine IBRD International Bank for Cable System Reconstruction and Development EATTA East African Tea Trade ICB International Competitive Bidding Association EIA Environmental Impact ICT Information and Communications Assessment Technology EIRR Economic Internal Rate of Return IDA International Development Association EMCA Environmental Management and IEC International Electro-Technical Coordination Act Commission EOI Expression of Interest IFC International Finance Corporation EPA Economic Partnership Agreement IFC CIC International Finance Corporation Investment Climate Development

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

IK Illuminating Kerosene L/A Loan Agreement IMF International Monetary Fund LAN Local Area Network IP Industrial Park LAPSSET Lamu Port and South Sudan Ethiopia Transport IRR Internal Rate of Return LCU Local Currency Unit IUCN International Union for LDC Least Developed Country Conservation of Nature JAFZA Jebel Ali Free Zone Authority LNG Liquefied Natural Gas JCC Joint Coordinating Committee LS Lump-Sum JETRO Japanese External Trade MAPSKID Master Plan Survey for Kenyan Organization Industrial Development JICA Japanese International MCM Municipal Council of Mombasa Cooperation Agency JIS Japanese Industrial Standards MCRDP Mombasa City Road Development Project JKIA Jomo Kenyatta International MEAACT Ministry of East African Affairs, Airport Commerce and Tourism JST JICA Study Team Mg/l Milligrams per Litre JSWA Japan Sewage Works AgencyMICE Meeting, Incentive, Convention, and Exhibition KAM Kenya Association of MOENR Ministry of Environment and Manufacturers Natural Resources kbps Kilobit per second MOEP Ministry of Energy and Petroleum KD Knock Down MOF Ministry of Finance KEI Katahira Engineering MOIED Ministry of Industrialization and International Enterprise Development KenGen Kenya Electricity Generation MOLHUD Ministry of Land, Housing and Company Urban Development KENHA Kenya National Highways MOTI Ministry of Transport and Authority Infrastructure KenInvest Kenya Investment Authority MOU Memorandum of Understanding KEPSA Kenya Private Sector Alliance MPa Megapascal KES Kenya Shillings MSBR Mombasa Southern Bypass Road KFS Kenya Forest Service μS/cm Micro-Siemens per Centimetre kHz Kilohertz MSME Micro, Small and Medium Enterprise KMFRI Kenya Marine and Fisheries MSP Motor Spirit Premium Research Institute KMP Kenya Municipal Program MSR Motor Sprit Regular KNBS Kenya National Bureau of MT Metric Ton Statistics KOSF Kipevu Oil Storage Facilities MTP1 Vision 2030 First Medium-Term Plan 2008 – 2012 KPA Kenya Port Authority MTP2 Vision 2030 Second Medium-Term Plan 2013 – 2017 kph Kilometres per hour MVA Mega Volt Amp KPLC Kenya Power and Lighting MW Megawatt Company Ltd. KRA Kenya Revenue Authority N-CCA Non-Custom Controlled Area kV Kilovolt NEAP National Environment Action Plan KWS Kenya Wildlife Service NEMA National Environment Management Authority

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

NOCK National Oil Corporation of SEZ Special Economic Zone Kenya NPV Net Present Value SEZA Special Economic Zone Authority NR National Road SEZAR Special Economic Zone Authority of Rwanda NT National Treasury SME Small and Medium Enterprise NTC Number of Targeted Companies SPV Special Purpose Vehicle NTU Nephelometric Turbidity Unit SS Sub-Station NWMP National Water Master Plan SWOT Strength, Weakness, Opportunity, Threat Analysis ODA Official Development Assistance TEAMS The East African Marine System OECD Organization of Economic TEU Twenty-Foot Equivalent Unit Cooperation and Development O&M Operation and Management TICAD Tokyo International Conference of African Development PCC Pure Car Carriers UAE United Arab Emirates PCU Passenger Car Unit UK United Kindom P.O.L. Petroleum, Oil and Lubricants UN United Nations PPDA Public Procurement Disposal Act UN United Nations Commodity Trade COMTRA Statistics Database DE PPIAF Public Private Infrastructure UNCTAD United Nations Conference on Advisory Facility Trade and Development PPP Public Private Partnership UN-DESA United Nations Department of Economic and Social Affairs PR Product UN- United Nations Human HABITAT Settlements Program PVC Polyvinyl Chloride USA United States of America RAP Resettlement Action Plan USD United States Dollar R/D Record of Discussion VA Value R&D Research and Development VAT Value Added Tax RM Raw Material VR Valid Response RMU Ring Main Unit WB World Bank RR Response Rate WDC Water Distribution Centre SADAC South African Development WDI World Development Indicator Community SAPROF Special Assistance for Project WHO World Health Organization Formation SEA Strategic Environmental WSC Water Supply Company Assessment SEC Special Economic Cluster WWTP Wastewater Treatment Plant

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

EXECUTIVE SUMMARY

1. Project Outline

1.1 Project Objective

The Project aims to prepare a Master Plan of Mombasa SEZ at Dongo Kundu with the main outputs as indicated here below. Output 1: The formulation of concepts and visions of the SEZ Output 2: Identification of targeted industries and functions of the SEZ Output 3: Formulation of the general plan of infrastructure development in the SEZ Output 4: Operation and management of the SEZ

1.2 Project Target Area

The planned SEZ is located at Dongo Kundu in Mombasa, next to Mombasa Island in the opposite shore of Mombasa port. The total area is 12 km2 (1,200 ha).

Mombasa SEZ 12 km2

Source: JICA Study Team Figure 1.1: Location of the DK-SEZ

2. Legal Framework for the SEZ Development

2.1 SEZ Legal Framework

The operations of an SEZ in Kenya will have to be governed and facilitated by Kenya’s national law as well as the rules and regulations set by the East African Community (EAC). The current status of rules and regulations for SEZ at both the EAC level and national level in Kenya is summarised in table below.

ES-1 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 2.1: Rules and Regulations for SEZ in Kenya and in EAC National Level in EAC Level Kenya Policy guidelines SEZ Policy (draft) National SEZ Policy (draft) Laws, Treaty and Protocols Protocol on the Establishment of SEZ Bill, 2015 (under the EAC Customs Union Parliamentary Process) (Protocol), EAC CMA 20041 Regulations Annex XXXV to the Protocol SEZ Regulations (draft) EAC CMA Regulations 20102 Source: JICA Study Team 2.2 EAC SEZ Framework

The EAC Council has been developing the harmonised regulations and guidelines to implement the various provisions under the SEZ Policy. The partner states will be required to establish harmonised national laws, regulations, and guidelines for determining and setting up various SEZ schemes.

2.3 Kenya SEZ Bill and Regulations

SEZ Bill 2015

The SEZ Bill 2015 was submitted to the Parliament on 17th February 2015 and is under consideration for possible enactment by the National Parliament of Kenya.

The bill consists of the following parts and 39 clauses as a total.  Part I – Preliminary  Part II – The Special Economic Zones  Part III – The Special Economic Zones Authority  Part IV- Financial Provisions  Part V –Regulatory Provisions  Part VI – Rights and Obligations of the Special Economic Zone Entities  Part VII – Miscellaneous Provisions

SEZ fiscal incentives will be provided for in the existing national laws, such as income tax law, VAT law and excise law, for all SEZ transactions.

SEZ Regulations

Ministry of Industrialization and Enterprise Development (MOIED) and the Special Economic Zones Authority (SEZA), which will be formed after the enactment of the SEZ bill, are the champion organizations in formulating the SEZ Regulations for implementation of the SEZ Act.

2.4 Kenya PPP Act

On 8th February 2013, the Public Private Partnership (PPP) Act came into force in order to effectively enhance various PPP activities in Kenya. The contents of the Act are summarised here below.

1 “EAC CMA 2004” means the East African Community (EAC) Customs Management Act (CMA) assented in 2004. 2 “EAC CMA Regulations 2010” means the Regulations issued in 2010 for “EAC CMA 2004”. ES-2 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report  Preliminary  Institutional Framework for PPP including PPP Committee, PPP Unit at MOF, and PPP Node at Each Contracting Ministry  Procedure for Implementation of PPP Project  PPP Project Facilitation Fund and Information Disclosure  Miscellaneous  Savings and Transitional

The SEZ at Dongo Kundu in Mombasa is listed on the national priority list as one of the 59 PPP projects.

3. Industrial Development Framework for the SEZ Development

3.1 Categorisation of Strategic Industries for Mombasa SEZ

The Table below categorizes the type of potential industries to the SEZ.

Table 3.1: Types of Industries to be Located in Mombasa Types of Industries Descriptions Nature of the industry Trade hub for export Industries located in Mombasa to Export-oriented or potential of export. form a trade hub. Trade and logistics hub Industries to streamline the trading Capturing demand of the domestic and for regional and whereby marketing activities can be regional demand. domestic market conducted. Imported with a large amount. Imported as finished goods. Processing of locally Processing of locally available Resource –based Industries with possibility available resources resources mainly for export and in procuring raw materials from the areas partial domestic consumption. surrounding Mombasa Processing of imported Processing of imported material for Relying on the imported material. materials for domestic the domestic and export market. Semi- or finished process can reduce the and export market quantity for transportation. Source: JICA Study Team 3.2 Priority List of the Industries for Promotion in Mombasa SEZ

The candidate industries are further assessed through various criteria and narrowed down as a priority list in the Table 3.2.

3.3 Anchor Industries for Mombasa SEZ

Among the abovementioned categories of industries, some industries can be selected and promoted as anchor investors for effective formation of industrial development. Anchor investors are expected to play the following roles: i) high visibility and presence in the domestic and regional economy which can induce further investment in the same SEZ or surrounding areas; and ii) high potential for forward and/or backward linkages.

Whereas these investors can start from trading, further diversified activities are expected as part of forward and backward linkages. The already established volume of trade and brands of companies involved are also expected to induce investment of related industries.

ES-3 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 3.2: Priority List of the Industries for Mombasa SEZ

Factors Determining Mombasa's Competitiveness as Industrial Location Trade Volume and Growth Industry Import of Complete, Resource Endowments in Human Resource Relation with Other Export from Logistics Factors Semi-finished or the Coast Endowment Industries Mombasa Raw Materials Agro-processing mainly for the domestic and 〇〇 East and Southern Africa Agro-processing Agro-processing mainly for export to outside of ○ ○○ East and Southern Africa Fish and marine resource processing Fish and marine resource processing ○○ Textile ○ Textile & clothing Wearing apparels ○○ ○ Leather and leather products Leather products ○ ○ Consumer goods ○○ ○ ○ Chemical Industries Chemical industries (Fertilizer, other chemical ○○ ○ products) Pharmaceuticals Pharmaceutical and medical products ○ Petroleum products Petroleum and petrochemical products ○○ ○○ Electricity generation Energy Bio-fuel Rubber and plastic Rubber and plastics ○○ ○○ ○ Paper and paper products Packaging industry ○ ○ Printing Cement, glass sheet etc Depending on the Construction materials ○ ○○ Products Iron and Steel Basic metals ○○ ○ ○ Metal fabrication Can, structured metal etc ○○ Agro- and other machinery for Machinery and equipment ○ manufacturing and general use Electrical appliances and equipment ○ ○ Electrical appliances & equipment Electrical generation equipment ○ Motor vehicles Motor vehicles ○○ Cut flower and Fresh produce Cut flower and fresh produce ○ Infrastructure development services Infrastructure development services ○ ○ Logistics & services Logistics & services ○○ ICT BOP, data processing and management for ○ MICE (conference & MICE ○○○ exhibision&accomodation) 〇 Exhibits strength in the factor Industries with higher potentials (exhibiting strength in more than three factors) Industries considered important with strong relation with other industries Source: JICA Study Team

4. The Proposed SEZ Development Plan

4.1 Overall Goal of SEZ Development

The overall goal of SEZ development in Kenya is to improve quality of life in Kenya by creating job opportunities, bringing a variety of business opportunities, and improving living conditions as illustrated in Figure 4.1. To achieve the overall goal, the SEZ should become the economic engine in the region, a centre for diversification of existing industries, and become a regional hub for the logistics, information and human resources, and growth trigger base for the non-traditional industries and new domestic value-chain.

accruesocio-economicbenefit by eco-friendly way - create more job opportunities - improve living condition - bring various business chances - realize affluent life-style

necessary to utilize and maximize the necessary to attract investors with new value of domestic natural and human technology and market access and resorces including surrounding counties. accumulate various types of industries and business in SEZ.

necessary to create efficient logistics to promote non-traditional industries and system and to develop information businesses in Kenya by inducing FDI and system and a human resources HUB creating new domestic value-chain. for East African Region.

Source: JICA Study Team Figure 4.1: Overall Goal of SEZ Development in Kenya

ES-4 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 4.2 Specific SEZ Development Goals

Figure 4.2 shows specific development goal for the SEZ at Dongo Kundu in Mombasa with consideration of the area characteristics as a gateway to the Eastern African Community (EAC).

Various economic activities will take place: manufacturing, logistics. commerce, services, etc. Forward and backward Business societies will linkages will be be engaged in established between non-traditional FDI and local business industries. Specific SEZ societies. Development Integrated and efficient Goals logistics services will Creating Logistics Hub be established for for EAC and Beyond contributing to the Mombasa SEZ will for import/export and regional and global contribute to the rapid transshipment supply chain. economic growth of Mombasa (then to nation- wide) through high value added industries and creating the job opportunities

Source: JICA Study Team Figure 4.2: Specific Development Goals of the SEZ

4.3 Development Concept

The SEZ at Dongo Kundu in Mombasa is a port-based SEZ located on the opposite side of Mombasa International Port, which is the only deep seaport in the region, functioning as the logistics gate of EAC and surrounding areas. This SEZ will be developed in full utilisation of its advantageous location as a proxy to the international port.

The development concept of the SEZ will be the “Logistics and Trade HUB for Kenya and the Northern African region”.

Source: JICA Study Team Figure 4.3: Component of the SEZ Development

ES-5 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 4.4 Planned Component

To fully utilise the indigenous advantage of proximity to the international port, a logistics industry base such as FTZ, industrial park, as well as energy base should be introduced in the SEZ at Dongo Kundu in Mombasa. In addition, residential and tourism functions are recommendable to create an integrated SEZ. Infrastructure, including power supply, water supply, waste treatment and telecommunication, should be necessary for attracting investors. Figure ES.3 illustrates the component ideas of Mombasa SEZ development.

4.4 Land Use Plan

Land use alternatives are evaluated by four evaluation criteria, 1) total development area, 2) earthwork volume, 3) environmental impact, and 4) land use efficiency. Accordingly, Alternative 1 illustrated in Figure 4.4 is evaluated as the preferable plan.

4.5 Infrastructure Development

Preliminary engineering studies were made for the following fields for the SEZ project at Dongo Kundu in Mombasa. 1) Land Reclamation Plan 2) Road Network and Transportation Plan 3) Port Facility Plan 4) Power Supply System Plan 5) Water Supply System Plan 6) Drainage System Plan 7) Sewerage System Plan 8) Solid Waste Management Plan Source：JICA Study Team 9) Telecommunication System Figure 4.4: Land Use Plan of Mombasa SEZ Plan (Alternative 1)

ES-6 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 4.6 Construction Cost Estimation for Public Infrastructure

Construction Cost Table 4.1: Construction Cost for Public Sector Infrastructures A total construction cost of Construction Cost mil. USD public infrastructures including I Public Infrastructure 50.9 1 Arterial Road 44.7 public (internal) infrastructure, Arterial Road Northeast 21.2 Arterial Road Northwest 13.0 port, and external infrastructure Arterial Road South 10.5 is estimated at USD 386.6 2 Main Drainage 6.2 Drainage 1 1.8 million. The summarised cost Drainage 2 0.7 estimate is shown in Table 4.1. Drainage 3 0.7 Drainage 4 3.0 The locations of these public II Port 302.1 1 Berth D1 177.2 infrastructures are shown in 2 Berth D2 124.9 Figure 4.5. III External Infrastructure 33.6 1 Power (transmission line and substation) 21.2 Water (transmission pipe and distribution 2 12.4 centre) Subtotal 386.6 Source: JICA Study Team

Source: JICA Study Team Figure 4.5: Infrastructure Plan within the SEZ

ES-7 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 5. Environmental and Social Considerations

5.1 Overall Progress of the SEA Study

The Strategic Environmental Assessment (SEA) for Mombasa SEZ Master Plan has been undertaken in line with the legal requirements3 of Kenya. The specific procedures have been guided by the National Guidelines for SEA (NEMA, 2012) and the Environmental Management and Coordination Act (EMCA) 1999, as well as the JICA Guidelines for Environmental and Social Considerations 2010. Upon successful completion of the Validation Meeting on 10 December 2014, the Final SEA Report was submitted to NEMA for approval.

5.2 Recommendations of the SEA Study

1) Resolution of resettlement issue: There is a need for a coordinated and comprehensive RAP to ensure that the challenge pertaining to involuntary resettlement in Dongo Kundu can be addressed at once.

2) Adaptive environmental management: An ESMP has been developed based on the analysis on impacts in different stages of the Master Plan and provides a framework for the management of likely environmental and social impacts on key resources. The Master Plan should take adaptive approach in environmental management.

3) Inclusive development of the SEZ: In the incidence where jobs appear to be taken by foreigners, the sentiment of isolation could trigger resentment among the locals and thus undermine the very stability required to inspire confidence in potential investors. A skills development program should be adopted and implemented by stakeholders within and outside of the Master Plan so as to enhance the participation of the local community to the job market to be created by the SEZ.

4) Management of induced development impacts: Implementation of the Master Plan will create significant demands for services and commodities in areas far beyond the physical boundaries of the SEZ. The Master Plan and this SEA create an opportunity for the county government to identify such requirements early enough and start planning for likely impacts in the future.

5) Coordination with other ongoing initiatives: The need for the Master Plan to support other initiatives such as the proposed Mwache Dam Project, the upcoming Mombasa Gate City Master Plan, the JICA-funded Southern Bypass Road Project, amongst others, whose successful implementation is crucial to the realisation of Mombasa SEZ.

6) Need of continued engagement of stakeholders: Certain measures such as capacity building, community mobilisation to support RAP, amongst others require collaboration

3 Regulation 42(1) of Legal Notice 101 of EMCA 1999 requires all public policy, plans, and programmes planned for implementation to undergo the Strategic Environmental Assessment.

ES-8 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report of multiple stakeholders, and thus it is imperative that all stakeholders play respective roles for the realisation of the goals of the Master Plan. One of the key messages emerged from the Validation Meeting was that the Master Plan is a collective undertaking of all parties involved.

6. The Implementation Plan and Proposed Management Framework

6.1 Proposed Implementation Structure

The implementation structure for the development of the SEZ at Dongo Kundu is proposed in Figure 6.1.

PPP Project for Mombasa SEZ Development Land Owner [Contracting Private Investor(s) [PPP Agreement] Authority]

Category A Area Category B Area (fast track development area) (other area)

Area A-1 Area A-2 Area B1-1 Area B1-2 Area B2-1 Area B2-2 SEZ Developer SEZ Developer SEZ Developer SEZ Developer SEZ Developer SEZ Developer [Contracting [Contracting [SPV (Contracting [SPV (Contracting [SPV (Private)] [SPV (Private)] Authority] Authority] Authority+Private] Authority+Private]

E E E E E E E E E E E E E E E E E E

SEZ Enterprises SEZ Enterprises SEZ Enterprises SEZ Enterprises SEZ Enterprises SEZ Enterprises

Legend by [Contracting Authority] by a private party shall be selected by PPP Note: Terms in [ ] are defined by the PPP Act

Note Category A Area is the priority area that accelerates the project to meet the development time frame set by the Government. The Contracting Authority suggest to develop the Category A Area as a fast track area to facilitate participation of private parties into the SEZ under PPP agreements. The Category A Area consists of following components: 1. Public infrastructure development that requires injection of public funds including major roads, drainage system, substation, water terminal and resettlement areas, and 2. Model area development that leads private investment to the SEZ.

Source: JICA Study Team Figure 6.1: Proposed Implementation Structure for the SEZ Development

6.2 Development Area Classification and SEZ Developer

1) Priority Development Area

Strong lead by the Government of Kenya is required to initiate the SEZ project in Dongo Kundu. The priority development area, which is referred to as Category A area, is proposed to be developed by the Government to receive fast track investor. This area aims to attract major international or national companies and/or major industry sector companies as SEZ enterprises, which will bring the value addition to the economy of Kenya as well as the SEZ. From the viewpoint of Kenya’s future economic development,

ES-9 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report attracting such companies will also promote the development of advanced industries as well as logistics and trading.

SEZ Developer for the Category A Area  Land owner appointed by the Government of Kenya will become SEZ developer. It is proposed that the state organization which substantially has ownership of the land become SEZ developer as illustrated for Category A area in Figure 6.1.  Land owner will be necessary to establish a company incorporated in Kenya for the purpose of undertaking SEZ activities as stipulated in the SEZ Bill, if the qualification of SEZ developer will be enacted as the bill.

2) Other Areas

The rest of the SEZ is referred to as the Category B area. This area aims to attract other industries such as labour-intensive, small to medium scale enterprises. This area will be developed by different developers from the Category A area.

SEZ Developer for the Category B Area  It is proposed that development of the Category B area should be executed under the PPP agreement. The successful bidder needs to set up a company incorporated in Kenya aimed at executing the awarded contract for public private partnership, which is referred to as SPV under the PPP Act.  There are two types of SPV for Category B area. The first type is SPV established as a joint venture of private firm(s) and the land owner referred to as Contracting Authority under the PPP Act (see Area B1 in Figure 6.1). This type of SPV will use the land lot to be supplied by the Contracting Authority for equity participation.  The second type is SPV established only by private firm(s) (see Area B2 in Figure 6.1). This type of SPV will lease the land lot from the Contracting Authority.

ES-10 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 6.2: Tentative Proposed Area for Category A Development

6.3 Implementation Schedule

Based on strong intention of the Kenyan government to launch the SEZ (Phase 1) by 2018, the implementation schedule has been proposed as shown in Figure 6.3.

ES-11 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

2015 2016 2017 2018 2019 2020 2021 2022 work item 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 I II III IV I II III IV I II III IV I II III IV I II III IV

A1 SEZ Act (SEZ Bill enactment by Parliament)

others A2 SEZ Incentives (Taxation Acts revision by National Treasury) B1 Preparation of PPP-FS (based on PPP Act clause 33) - Preparatory works - Establishment of PPP Node - Procurement of Transaction Advisor - Preparation of PPP-FS - PPP Committee approval for PPP-FS B2 Tender Procedure for SEZ Developer in conformity to PPP Act - PQ - Tender

MOIED - Evaluation - Negotiation - Cabinet approval for the memorandum B3 Declaration of Mombasa SEZ B4 Establishment of SEZA - Preparatory works - Establishment of SEZA

C1 Formulation of SEZ Regulation and Negative List - Preparatory works - Recommendation to MOIED-CS - MOIED-CS approval for SEZ Regulation C2 Establishment of One Stop Centre

SEZA - Preparatory works - Recommendation to MOIED-CS - MOIED-CS approval for SEZ Regulation C3 Grant of License to the SEZ Developer C4 Grant of License to the SEZ Enterprise D1 Establishment of the Organization D2 Formulation of Operational Rules and Procedures (internal regulation) D3 Development of Zone Infrastructure - Feasibility Study, including EIA - Design Works

SEZ DeveloperSEZ - Contractor Procurement Category B Area - Construction Works

E1 Establishment of the Organization E2 Formulation of Operational Rules and Procedures (internal regulation) E3 Development of Public and Zone Infrastructure - Feasibility Study, including EIA GOK - Design Works - Contractor Procurement Categoty A Area - Construction Works

F1 Development of Port and Facilities - Procurement approvals - Study - Design Works - Contractor Procurement Public Infrastructure Public Relevant Authorities Relevant - Construction Works Source: JICA Study Team Note: This is subject to on-going Parliamentary process! Figure 6.3: Proposed Implementation Schedule

6.4 Economic Analysis

The objective of the economic analysis is to assess the impact on the national economy of the SEZ development including zone developments and supporting infrastructure. The analysis evaluates the project in terms of economic aspects by calculating the net present value (NPV) and internal rate of return (IRR) in discounted cash flow analysis. The economic internal rate of return (EIRR), benefit-cost ratio (B/C) and the net present value of the benefit-cost balance (NPV) of the whole project duration are calculated as here below with the NPV discounted at 9.0%, which is the 2014 average of Kenya’s 91-day Treasury Bill interest rate. From this economic analysis, the SEZ development at Dongo Kundu in Mombasa appears to be able to accrue larger economic benefits for the national economy.

Table 6.1: Results of the Economic Cash Flow Analysis EIRR (%) B/C NPV (USD million) 37.94 5.79 1,748.98 Source: JICA Study Team

ES-12 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 6.5 Financial Viability

The analysis is made to access the financial viability of the SEZ development at Dongo Kundu in Mombasa. The analysis is based on the assumption that the SPV/Contracting Authority is a sole developer and prepares the entire infrastructure as well as the land. However, the cost for port, power, and water will be excluded from the financial burden of the SPV/Contracting Authority since these costs will be covered by other respective authorities.

To implement, realise, and accelerate the project, the prices of land to SEZ developer to SEZ enterprises must be kept at a competitive level. The calculation uses the land prices which could be competitive to the rest of industrial areas in Mombasa. Then, the SEZ developer will find very low FIRR as shown in Table 6.2 here below.

Table 6.2: Results of the Financial Analysis for the SEZ Developer (SPV) FIRR (%) B/C NPV (Million USD) 0.34 0.76 -44.18 Source: JICA Study Team 6.6 The Necessity of PPPs

The result is that the financial viability for the SEZ developer is marginal. In order therefore to realise considerable economic benefits, the development of the SEZ must be carried out as a government-led project or a public and private partnership. Since the project has been listed in the PPP National Priority List, the government needs to decide which components are to be covered by the public in order to secure the benefit of potential investors of the SEZ and the overall national economic benefit.

PPP Procurement

MOIED undertakes a feasibility study (F/S) for the approval of the PPP Committee pursuant to Section 33 of the PPP Act. The purpose of this F/S is to determine the viability of undertaking the project. According to the PPP Unit, the F/S should be conducted after the establishment of the SEZ legal framework as a result of approval of the SEZ Bill by Parliament. After being confirmed through the F/S the investment rationale for potential investors, a competitive bidding process would follow under Section 37 onwards. The bidding process consists of three steps, i.e., (1) prequalification of potential bidders, (2) tender and evaluation of the technical proposal and financial bid submitted by the bidders, and (3) negotiation with the first-ranked bidder. In practice, a transaction advisor is often procured to provide various professional support to the government in order for her to successfully execute the process described herein.

In recent practice, a transaction advisor is often recruited with the support of the PPP Unit in order to provide professional assistance to the F/S and/or implementation of the tender process.

ES-13 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report The support of the PPP Unit includes not only advice on the procurement process, but also financial support from the PPP Project Facilitation Fund, whose back-up finance is provided from USD 40 million credit facility of the World Bank dated in December 2012. It is mentioned in the procurement of the transaction advisor to follow the World Bank’s Consultant Guidelines.

6.7 SEZ Authority and One-Stop Centre

For operation and management of the SEZs in Kenya, it is necessary to establish the SEZ Authority (SEZA) and the One-Stop Centres in compliance with the SEZ Act to be enacted.

SEZA will have the following functions as the regulatory authority for the SEZs in Kenya. (a) Policy, regulation, rules, procedure and plan; (b) Regulatory and management; (c) Identification of land; (d) Investment promotion; and (e) Others

SEZ Bill 2015 stipulates that SEZA has a function to administrate the one "one-stop" centre(s) through which SEZ Enterprises can channel all their applications for permits, approvals, licenses and facilities not handled directly by SEZA, coordinating with such other Government or private entities as may be necessary, through agreements with the entities or procedures defined in implementing Regulations or such other prescribed procedures. Besides, SEZ Bill also stipulates that Regulations, which is also formulated by the SEZA, may determine the rules pertaining to the establishment, functioning, operations, and procedures for the SEZ one-stop-shops.

6.8 SEZ Developer, Operator and Enterprises

SEZA will issue licences for SEZ Developer, SEZ Operator and SEZ Enterprises so that they could be engaged in activities based on the following definitions:  SEZ Developer is a corporate body which is engaged in or plans on developing, and which may or may not also operate or plan to operate, a SEZ under the SEZ Act.  SEZ Operator is a corporate body engaged in the management of a SEZ, and designated as such under the provisions of the SEZ Act.  SEZ Enterprise is a so-called “tenant”, and engaged in business activities allowed by the SEZ Act in a SEZ.

The SEZ Act to be enacted will stipulate the application and issue of licenses as well as qualifications of them. The rights and obligations of them will be stipulated by the SEZ Act as well.

ES-14 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 7. Conclusions and Recommendations

7.1 Preconditions for the Success of the Mombasa SEZ Project

There are essentially two factors: the external factors which cannot be controlled by the MOIED and, the internal factors which are within the MOIED’s authority.

External Factors: The following external factors surrounding the SEZ will have great impact and bearing on its success:

. Maintain the sufficient domestic economic growth; . Maintain the public order and security and social environment around SEZ; . High level coordination and implementation of commitment made by the Government of Kenya and high level coordination; . Enabling Legal framework; especially enactment of the SEZ Act in Kenya and implementation of the Policy for the East African Community (EAC); . Timely completion of off-site infrastructure projects; especially the timely completion of surrounding infrastructure projects such as the Southern Bypass Road, Dongo Kundu Port, water and electricity supply; and . Mobilization of project funds.

Internal Factors: All concerned parties should make the effort to drive the success of the SEZ project by focussing on the following internal factors.

Implementation Factors . Developing a robust implementation structure, including one-stop centre, and action plan; . Implementation of the project activities as scheduled; . Cooperation and collaboration with key stakeholders, such as County Governments, KPA, MOEP/KPLC and the community; . Timely procurement of the Developers; . Offering competitive prices of leasing or selling land lots in the SEZ considering enterprises/investors attraction; . Set-up, operate and manage One-Stop Centre to make convenience for the investor; and . Undertaking marketing and promotion.

Land Use and Design Factors . Necessary to maximize the utilization of unique character of land; . Conducting a feasibility study and development of the detailed plan; and . Approval of the development plan from the relevant authorities.

Environmental Factors . Necessary to engage the stakeholder for smooth resettlement and implementation; and . Conducting an Environmental Impact Analysis (EIA).

ES-15 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 7.2 Conclusions

The Master Plan identifies the goal, challenges, vision and physical development and its implementation plan to bring the SEZ at Dongo Kundu in Mombasa, and it will support to achieve the targets determined in Kenya Vision 2030.

The Master Plan was come out with; ･ Priority industrial sectors were proposed with consideration on the trend and future analysis to attract of both local and foreign investments; ･ Promotion of value addition, expand and diversify the production of goods and services, through flexible investment attraction without limits to proposed priority industrial sectors. It was suggested to evaluate based on the business plan of the individual investor during the evaluation as for SEZ enterprise; ･ Enhancement of technology development and innovation, for all economic functions of the SEZ; and ･ Maximization of the unique land condition of the SEZ, by following the land use plan which was prepared under consideration on the cost and environmental affects.

With the proposed 958 hectare development footprint included in the Master Plan, the SEZ will provide employment for 27,000 people and bring the better quality of life to Kenya.

ES-16 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

CHAPTER 1 INTRODUCTION AND CONTEXT

1.1 Project Background

The Government of Kenya (GOK) prepared the Kenya Vision 2030 policy blueprint which among other things, aims at bringing about new industrialisation and transforming Kenya into a middle-income country. The development of Special Economic Zones (SEZs) in the Kenyan towns of Mombasa, Kisumu, and Lamu were proposed as a one of the core instruments for the realisation of the Kenya Vision 203 with the Mombasa SEZ proposed as one of the flagship projects under this strategic vision.

The GOK has in turn requested the Government of Japan (GOJ) to facilitate support in formulating a Master Plan for the SEZ development in Mombasa. In response, the GOJ assented to the request has thus facilitated support for the formulation of the Master Plan for the SEZ development in Mombasa with the ‘Record of Discussion (RD) signed between Japan International Cooperation Agency (JICA) and GOK in November 2013.

1.2 Project Objectives

In sum, the Project aims to prepare a Master Plan of Mombasa SEZ at Dongo Kundu with the main outputs as indicated here below:

Output 1: The formulation of concepts and visions of the SEZ Output 2: Identification of targeted industries and functions of the SEZ Output 3: Formulation of a general plan for infrastructure development under the SEZ Output 4: Operation and management of the SEZ

The afore-listed outputs are expected to contribute to the efficient execution of a SEZ development in Mombasa in the coming years. Accordingly, the project will become a major stepping stone for industrialisation in Kenya.

1.3 Project Organisation

The lead executing agency for the project is the Ministry of Industrialization and Enterprise Development (MOIED) together with the Ministry of Transport and Infrastructure (MOTI). Other related stakeholders include the Kenya Port Authority (KPA), the Mombasa County Government and others. Table 1.1.1 below shows the list of members of the Joint Coordinating Committee (JCC) for the project.

1-1

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 1.1.1: JCC Members (Listed on the RD) 1 Ministry of Industrialization and Enterprise Development Principal Secretary (Chair) (MOIED) 2 Ministry of Transport and Infrastructure (MOTI) Principal Secretary (Vice Chair) 3 Ministry of Land, Housing and Urban Development Principal Secretary (MOLHUD) 4 The National Treasury (NT) Principal Secretary 5 Ministry of East African Affairs, Commerce and Tourism Principal Secretary (MEAACT) 6 Ministry of Energy and Petroleum (MOEP) Principal Secretary 7 Ministry of Environment and Natural Resource Principal Secretary (MOENR) 8 Mombasa City County Governor 9 Kwale County Governor 10 Kenya Investment Authority (KenInvest) Managing Director 11 Export Processing Zones Authority (EPZA) Chief Executive Officer 12 Kenya Port Authority (KPA) Managing Director 13 Vision 2030 Delivery Secretariat Director General 14 Kenya Private Sector Alliance (KEPSA) Chief Executive Officer 15 Kenya Association of Manufacturers (KAM) Chief Executive Officer Source: Record of Discussion on the ‘Project on Master Plan for Development of Dongo Kundu, Mombasa Special Economic Zone in the Republic of Kenya (November 2013)

1.4 Project Schedule

The project for the formulation of the Master Plan for SEZ development in Mombasa started in January 2014. The grand design and preliminary project plan was presented to the JCC in June 2014. At the same time, a progress report has been submitted to the GOK. The project is expected to be completed in September 2015 with the presentation of the Master Plan and submission of the final report. The proposed project schedule is summarised in the box below:

February 2014 Kick-Off Meeting and 1st JCC Meeting June 2014 2nd JCC Meeting October 2014 3rd JCC Meeting November 2014 Promotion Seminar in Nairobi December 2014 Promotion Seminar in Mombasa January 2015 4th JCC Meeting August 2015 Promotion Seminar in Japan

1.5 Project Target Area

The SEZ will be located in Dongo Kundu, next to Mombasa Island in the opposite shore of Mombasa port (Figure 1.1.1). The total area is 12 km2 (1,200 ha).

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Mombasa SEZ 12 km2

Source: JICA Study Team Figure 1.1.1: Location of the SEZ

1.6 Outline of the Mombasa SEZ Final Report

This report constitutes the final Master Plan for the SEZ development at Dongo Kundu in Mombasa and comprises ten chapters as follows: Chapter 1: INTRODUCTION AND CONTEXT Chapter 2: THE ECONOMY AND KENYA’S INDUSTRIAL SECTOR Chapter 3: THE LEGAL FRAMEWORK Chapter 4: INVESTMENT CLIMATE AND DEMAND Chapter 5: THE INDUSTRIAL DEVELOPMENT FRAMEWORK FOR SEZ DEVELOPMENT Chapter 6: CURRENT CONDITIONS OF MOMBASA AND DONGO KUNDU AREA Chapter 7: THE PROPOSED SEZ DEVELOPMENT PLAN Chapter 8: ENVIRONMENTAL AND SOCIAL CONSIDERATIONS Chapter 9: THE IMPLEMENTATION PLAN AND PROPOSED MANAGEMENT FRAMEWORK Chapter 10: RECOMMENDATIONS AND CONCLUSIONS

It must be noted that during the implementation phase, some plans and designs are bound to change as a result of normal fluctuations in business environments and the prevailing economic and political conditions in Kenya.

1-3

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

CHAPTER 2 ECONOMY AND INDUSTRIAL SECTOR

2.1 Situation of National Economy

2.1.1 National Economy and Growth Trend

Kenya now ranks ninth in Africa in terms of the size of gross domestic product (GDP) in current USD after reflecting the rebase announced by the National Bureau of Statistics on September 30, 2014. Although the annual growth rate shows highly volatile movements, the size of the national economy is increasing steadily at an average growth rate of 5.20% per annum from 2006 to 2013. The post-election disturbances affected several economic activities in Kenya in 2008, but the economy recovered quickly in the following years.

KES Million % 4,500,000 9.00 GDP (constant LCU, after rebasing) 2013 GDP (Constant, LCU) GDP growth (annual %) KES 3,638 Billion 8.00 4,000,000 5.74 % Annual Growth

3,500,000 7.00

3,000,000 6.00

2,500,000 5.00

2,000,000 4.00

1,500,000 3.00

1,000,000 2.00

500,000 1.00

0 0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

Source: KNBS (After rebasing, 2014 is provisional) Figure 2.1.1: Real GDP and Growth Rate in Kenya

Meanwhile, the real GDP per capita of Kenya shows an annual average growth rate of 2.41% in the past seven years. A per capita increase of approximately KES 12,000 in seven years is a significant amount.

The World Bank Atlas Method calculated the GDP per capita at USD 1160.0 in 2013. Kenya entered the group of “lower-middle income” economy.

2-1 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

100,000 10.00 GDP per capita (constant LCU)

90,000 GDP per capita growth 8.00 (annual %) 80,000

70,000 6.00

60,000 4.00

50,000

2.00 40,000

30,000 0.00

20,000

‐2.00 10,000

0 ‐4.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

Source: KNBS (After rebasing, 2014 is provisional) Figure 2.1.2: Real GDP per Capita

2.1.2 Industrial Structure and Trends

Figure 2.1.3 below shows the breakdown of output per economic activity in 2014. Agriculture, forestry, and fishing accounted for 27.3% of the total GDP of Kenya. The economic value addition from the manufacturing sector in Kenya is only 10.0%. While the production of manufactured goods is limited in Kenya, the service sector takes a large share. For the enhancement of the manufacturing sector, the improvement of social and economic infrastructure for business activities and citizens are necessary.

Activities of households FISIM as employers; ‐2.5% 0.5% Taxes on Other service activities products 0.6% 9.7% Arts, entertainment and recreation 0.1% Education Human health 5.2% and social Agriculture, forestry and Public administration work fishing and defence activities 27.3% 4.5% 1.7% Administrative and support service Mining and activities Professional, Real estate quarrying 1.1% scientific and 7.8% Manufacturing 0.8% technical activities 10.0% 1.0%

Financial and Transport Electricity supply insurance activities and 1.0% 6.7% Information and storage Water supply; communication Accommodation and 8.3% Construction sewerage, waste Wholesale and retail 1.2% food service activities 4.8% management trade; repairs 0.9% 0.8% 8.2% Source: KNBS Figure 2.1.3: Sector Share of the GDP (2014)

2-2 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report In recent years, over 50% of the GDP is borne by the services, whereas agriculture, forestry, and fisheries also grew from 23.2% in 2006 to 27.3% in 2014. The manufacturing sector reduced its share from 14.3% in 2006 to 10.0% in 2014. The service industry especially wholesale and retail, information and communication, financial and insurance activities and education exhibited higher degree of growth relative to the major sectors such as agriculture and manufacturing.

Taxes on products 100.0% FISIM Activities of households as employers; 90.0% Other service activities Arts, entertainment and recreation 80.0% Human health and social work activities Education 70.0% Public administration and defence Administrative and support service activities 60.0% Professional, scientific and technical activities Real estate 50.0% Financial and insurance activities Information and communication 40.0% Accommodation and food service activities 10.0% 30.0% 14.3% Transport and storage Wholesale and retail trade; repairs 20.0% Construction 27.3% Water supply; sewerage, waste management 10.0% 23.2% Electricity supply Manufacturing 0.0% Mining and quarrying 2006 2014 Agriculture, forestry and fishing ‐10.0% Source: KNBS Figure 2.1.4: GDP and Sectoral Share and Comparison between 2006 and 2014

2.2 Population, Demographics, and Labour Force

2.2.1 Population Growth and Population Distribution among Counties

Table 2.2.1 shows the annual average growth rates of population of the Republic of Kenya in the census years. The population of Kenya had almost doubled from 21.5 million in 1989 to 38.6 million in 2009. However, the growth rate has been gradually decreasing from 3.99% in 1989 to 3.38% in 1999. In recent years, the population growth is estimated to be approximately 2.7% as shown in Table 2.2.2. The latest disclosed population was 45.5 million in 2014.

Table 2.2.1: Population and Annual Average Growth Rate in Census Years Year 1962 1969 1979 1989 1999 2009 Total Population (1,000 persons) 8,636 10,943 15,327 21,448 28,687 38,610 Annual Average Growth Rate (%) - 3.82 4.01 3.99 3.38 3.46 Source: National Population and Housing Census (2009), KNBS

2-3 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 2.2.2: Population and Annual Average Growth Rate in Recent Years Year 2007 2008 2009 2010 2011 2012 2013 2014 Total Population (000 persons) 37,752 38,773 39,825 40,909 42,027 43,178 44,354 45,546 Annual Growth Rate (%) 2.71 2.70 2.71 2.72 2.73 2.74 2.72 2.69 Source: World Development Indicator (WDI), World Bank (WB)

Table 2.2.3 shows the demographic statistics by county in the latest census data. Out of 47 counties in the country, Nairobi City County, the capital, holds the largest population as well as the highest population density. Mombasa City County has a moderate population size due to its limited land size, but the population density in Mombasa City County is the second highest in the nation. Mombasa City is regarded as the second largest city in Kenya.

Larger ratio of population is observed in areas around Nairobi and the central and western parts of the country. Table 2.2.3: County Demographics in 2009 Density Population Land Area Counties Percentage Share (%) (Persons per (1,000 persons) (km2) km2) Nairobi City 3,138 8.13 695 4,514 Kisumu City 969 2.51 2,086 465 Mombasa City 939 2.43 219 4,290 KENYA in total 38,610 100 581,313 avg. 408 Note: The data has been adjusted to the current country divisions. Source: National Population and Housing Census (2009), KNBS 2.2.2 Urbanisation

Over the last 10 years, Kenya has been experiencing a moderate urbanisation. Between 2004 and 2013, the share of population in urban agglomeration of more than one million has increased by approximately 1%. Between the last two census years, 1999 and 2009, the population of Mombasa increased from 665,018 to 939,370 at an average annual growth rate of 3.51%, which is 0.8% higher than the national population growth rate.

2.2.3 Employment and Labour Force

Figure 2.2.1 below shows the composition of the labour force in Kenya. The share of the total labour force to the total population is less than 40%.

2-4 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Total Population 45,546.0

Age under 15 Age over 15 - 26,416.7 19,129.3 Labour Force - 17,245.8

Modern 1. Small Scale Agriculture Informal Sector Establishments 2. Subsistence Farming 11,843.5 2473.2 3. Pastoralist 4. Unemployment 2,929.1

Wage Employees Self-Employed 2370.2 Unpaid Workers 103.0

Unit: 1,000 persons Source: KNBS Economic Survey 2015, and WDI Figure 2.2.1: Composition of the Labour Force (2014)

It should be noted that the informal sector absorbs the large share of the labour force.. According to statistics, the provisional share of the informal sector was 85.7% of the total employment in 2014.

The employment structure in the urban area by industrial sector is shown in Figure 2.2.2. In Mombasa, apart from the community, social, and personal services, the largest employment is provided by the manufacturing sector. This is due to the natural feature of Mombasa, which has a very small land area consisting mainly of urban area in addition to the low level of development of the fishing industry. Since Mombasa has the largest port in the country, significant portion of the employment is found in transport and communication sector in Mombasa.

Earnings by Sector 100% Community, Social, Personal 5% 0%2% 1% 1% Service 90% 18% 19% Finance, Insurance, Real 21% Estate & Business Services 80% 2% 2% 9% 4% Transport & Communication 70% 2% 5% 14% 60% 14% Wholesale & Retail, Trade, 14% Restaurants & Hotels 50% 8% 9% 23% Construction 40% 9% 8% Electricity & Water 30% 7% Manufacturing 20% 37% 33% 29% 10% Mining & Quarrying 0% Kenya Nairobi Mombasa Agriculture & Fishery 2009 Source: KNBS, (No district data after 2009) Figure 2.2.2: Employment by Sector in Nairobi and Mombasa (2009)

2-5 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 2.2.4 below indicates the long-term projection of population, urbanisation, and economically active population in medium fertility case. With the expected population, the economically active population will be provided in the urban sector.

Table 2.2.4: Long-Term Population and Urbanisation Projection and Economically Active Population in Kenya 2011 2018 2025 2030 Annual Population at Mid-Year in Total ('000) *1 42,028 50,409 59,386 66,306 Annual Urban Population at Mid-Year ('000) *2 10,073 13,581 17,973 21,767 Economically Active Population (Medium Fertility, '000) *1 23,070 28,291 34,699 39,678 Ratio of Population at Mid-Year Residing in Urban Areas *2 24% 27% 30% 33% Source: *1 The JICA Study Team calculations are based on the UN data, *2 UN World Urbanization Prospect 2014, the years in between the projected years are the average of percentage of previous and later years, 2011 and 2012 are based on WDI.

2.3 Overview of Economic Activities

The resource and industrial basis available in Kenya is reviewed. Amongst the economic activities, the agricultural and manufacturing sectors are reviewed in this report.

2.3.1 Agriculture, Livestock, and Fisheries

(1) National Agricultural and Livestock Production

The agriculture, fisheries, and livestock sector accounts for a significant share of GDP and export. On the other hand, cereals and temporary industrial crops are imported to meet the country’s demand.

The major proportion of marketed agricultural and livestock production consist of horticultural product and permanent industrial crops with 30% and 35% of shares to the total production, respectively. Some major crops and products and their recent years are as shown in Table 2.3.1 below.

Table 2.3.1: Kenya’s Marketed Agricultural Production, Composition, and Growth Gross Marketed Production Share (%) Growth Category (KES million) (2007-2013) 2007 2013* 2007(%) 2013(%) Wheat 1,978.90 5,369.40 1.3% 3.0% 171.3% Maize 6,918.70 4,302.60 4.6% 2.4% -37.8% Cereals Rice (paddy) 846.80 687.30 0.6% 0.4% -18.8% Other Cereals 1,477.10 2,213.80 1.0% 1.2% 49.9% Cereal total 12,228.20 13,112.80 8.1% 7.3% 7.2% Cut flowers 27,884.10 32,272.80 18.5% 18.0% 15.7% Vegetables 20,532.40 18,576.00 13.6% 10.4% -9.5% Horticultural Fruits 1,713.10 3,394.30 1.1% 1.9% 98.1% Horticultural total 50,129.60 54,243.10 33.3% 30.3% 8.2% Pyrethrum 131.80 42.30 0.1% 0.0% -67.9% Temporary Sugarcane 10,486.50 13,443.50 7.0% 7.5% 28.2% Industrial Temporary industrial Crops 11,572.50 13,995.40 7.7% 7.8% 20.9% crops total Coffee 6,158.90 4,522.40 4.1% 2.5% -26.6% Permanent Sisal 1,014.30 1,071.30 0.7% 0.6% 5.6% Crops Tea 48,376.90 56,603.80 32.1% 31.6% 17.0%

2-6 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Gross Marketed Production Share (%) Growth Category (KES million) (2007-2013) 2007 2013* 2007(%) 2013(%) Permanent crops total 55,550.20 62,197.50 36.9% 34.7% 12.0% Cattle and calves for 9,564.90 19,325.70 6.3% 10.8% 102.0% slaughter Sheep, goats and lambs for 2,695.00 4,212.70 1.8% 2.4% 56.3% slaughter Livestock & Pigs for slaughter 333.90 554.70 0.2% 0.3% 66.1% Products Poultry and eggs 1,891.90 3,478.90 1.3% 1.9% 83.9% Hides and skins 924.40 840.20 0.6% 0.5% -9.1% Dairy products 5,500.40 6,754.30 3.6% 3.8% 22.8% Livestock and products 20,914.80 35,166.60 13.9% 19.6% 68.1% total Source: JICA Study Team based on KNBS (2014) Statistical Abstract 2014

The large increase is observed in livestock and produce. Wheat and fruits experienced a great leap in the short term, whereas cut flowers, sugarcane, and tea also led growth of crop categories. Grains show some volatility and not necessarily exhibiting decline.

Only 30% of marketed agricultural produce are produced by large-scale farming with an average size of 50 ha farmland, whereas the majority of crop farming are practised by small-scale farmers1.

It is also noticeable that livestock and products have grown largely in recent years. In 2013, cattle and calves for slaughter alone took up 10% of the value of agricultural production. Livestock products have increased its export mainly meeting the demand in Middle Eastern countries2. As shown in Table 2.3.2 below, the value of exported meat and meat products has increased by 350% in 2013 compared with 2006.

Table 2.3.2: Value of the Export of Meat and Meat Preparations Meat and meat preparations (KES million) 2006 2007 2008 2009 2010 2011 2012 2013 490,419 583,610 846,672 974,475 1,470,648 2,274,759 2,050,231 2,235,316 Source: KNBS Statistical Abstract 2014 (2) Fisheries

Despite the geographical location of Kenya, marine resources have not been fully utilised. The major source of fish resources is freshwater fish including fish farming and aquaculture, of which Lake Victoria is the biggest source. Marine resources including fish and crustaceans are landed in the Coast Region. The share of marine fish and crustacean from counties facing the Indian Ocean to the total fish landed is limited to around 6%.

Table 2.3.3: Kenya’s Fisheries Sector Composition Marine fish and Share of freshwater Share of marine fish Freshwater fish total crustaceans fish total (%) and crustaceans (%) Quantity (t) 2009 125,674 7,926 94.1% 5.9%

1 GOK (2010) Agriculture Sector Development Strategy 2010-2020 2 USAID (2012) End Market Analysis of Kenyan Livestock and Meat: A Desk Study, micro Report #184 2-7 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 2010 132,345 8,406 94.0% 6.0% 2011 140,474 8,572 94.2% 5.8% 2012 145,150 8,865 94.2% 5.8% 2013 152,711 9,138 94.4% 5.6% Value to Fishers (KES 1,000) 2009 10,718,407 737,068 93.6% 6.4% 2010 12,274,000 728,253 94.4% 5.6% 2011 15,830,826 846,395 94.9% 5.1% 2012 16,866,800 1,207,133 93.3% 6.7% 2013 19,583,067 1,298,173 93.8% 6.2% Source: JICA Study Team based on the data of KNBS (2014) Statistical Abstract 2014 2.3.2 Kenya’s Industrial Sector

The industrial sectors in Kenya, though with some differences and fluctuation, exhibit larger growth rate than GDP. As shown in Figure 2.3.1 below, mining, construction, and electricity supply experienced a surge of large investments in infrastructure development and mineral exploration. On the other hand, the manufacturing sector shows only limited growth relative to other sectors.

35.0%

30.0%

25.0% Mining and quarrying

20.0% Manufacturing

15.0% Electricity supply

10.0% Water supply; sewerage, waste management 5.0% Construction 0.0% 2007 2008 2009 2010 2011 2012 2013 GDP at market prices ‐5.0%

‐10.0%

‐15.0% Source: JICA Study Team based on KNBS “Information on the Revised National Accounts” September 2014 Figure 2.3.1: Growth Rates of Outputs of Industrial Sectors

(1) Construction Sector

The growth of the construction sector has been moderate in recent years, although the number of mega projects such as the development of standard gauge railway planned from Mombasa to Kampala is expected to boost the sector in coming years.

The manufacturing sector’s growth is also linked with the growth of the construction sector. The amount of cement consumption has been steadily growing from 2,671,000 t in 2009 to 4,266,500 t in 2013, together with the index of reported private building works completed in

2-8 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report major towns from 134.5 in 2009 to 401.2 in 2013. Similar development is expected in the region also experiencing development3.

(2) Manufacturing Sector

The manufacturing sector is the core industry of Kenya. More than half of the value added manufacturing is consisted of food products. Other activities with relatively large shares are beverage (6%), printing (6%), and coke and refined petroleum products (5%) (see Figure 2.3.2 below).

Manufacture of food products 0% Manufacture of beverages 1% 0% Manufacture of tobacco products 1% 2% Manufacture of textiles Manufacture of wearing apparel 1% 0% Manufacture of leather and related products Manufacture of wood and products of wood and cork 6% Manufacture of paper and paper products 5% 25% Printing and reproduction of recorded media Manufacture of coke and refined petroleum products 5% Manufacture of chemicals and chemical products Manufacture of pharmaceuticals, medicinal chemical and botanical products 4% Manufacture of rubber and plastics products 1% Manufacture of other non-metallic mineral products 6% 10% Manufacture of basic metals Manufacture of fabricated metal products, except machinery and equipment 8% Manufacture of computer, electronic and optical product 2% Manufacture of electrical equipment Manufacture of machinery and equipment n.e.c. 10% 4% 3% Manufacture of motor vehicles, trailers and semitrailers 2% 2% Manufacture of other transport equipment 3% Manufacture of furniture Other manufacturing

Source: JICA Study Team based on the data of KNBS (2013) Census of Industrial Production Figure 2.3.2: Share of Manufacturing Gross Value Addition per Activity

According to the Census of Industrial Production, the share of imported raw materials of the industrial sector in total including the mining and energy sectors is 47.6%.4 Table 2.3.4 shows the gross value added, ratio of value of imported materials in raw materials, and degree of value addition to the output. It is especially high in some manufacturing activities such as rubber and plastic products (83.9%), non-metallic mineral products (81.3%), fabricated metal products (73%). basic metals (70.3%), and tobacco (70.4%).

Many industries such as metal, chemical, machinery and electrical equipment exhibit rather high share of imported raw materials with lower degree of value addition.

3 KNBS, Statistical Abstract 2014. The index is developed using 1982 performance as 100. 4 KNBS (2013) Census of Industrial Production

2-9 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 2.3.4: Size of Production, Ratio of Imported Materials in the Raw Materials Degree of Value Addition of Manufacturing Activities % Value Percentage Gross Value Addition Share of Added (Gross value Import in Raw (KES billion) added/gross Materials (%) output) Manufacture of food products 64,348 19.8 21.43 Manufacture of beverages 24,419 54.1 40.39 Manufacture of tobacco products 4,261 70.4 34.82 Manufacture of textiles 9,807 43.8 31.80 Manufacture of wearing apparel 7,629 47.70 Manufacture of leather and related products 6,148 39.3 45.44 Manufacture of wood and products of wood and cork, except furniture; manufacture of articles of 4,122 6.5 20.91 straw and plaiting materials Manufacture of paper and paper products 7,303 56.3 27.71 Printing and reproduction of recorded media 25,804 38.3 49.33 Manufacture of coke and refined petroleum 19,976 25.86 products Manufacture of chemicals and chemical products 15,657 54.2 30.34 Manufacture of pharmaceuticals, medicinal 1,538 61.5 20.00 chemical and botanical products Manufacture of rubber and plastics products 11,195 83.9 23.09 Manufacture of other non-metallic mineral 11,563 81.3 28.79 products Manufacture of basic metals 1,4071 70.3 34.00 Manufacture of fabricated metal products, except 15,449 35.84 machinery and equipment Manufacture of computer, electronic and optical 313 51.8 30.93 product Manufacture of electrical equipment 2,325 73.5 26.74 Manufacture of machinery and equipment 2,181 16.27 Manufacture of motor vehicles, trailers and 42.3 34.74 semitrailers Manufacture of other transport equipment 123 14.85 Manufacture of furniture 914 54.8 6.84 Other manufacturing 3,944 34.4 41.07 Total 428,247 Source: JICA Study Team based on the data of KNBS (2013) Census of Industrial Production

Market for Manufactured Products

Despite some differences amongst activities, the major market of Kenya’s industrial activities in general is the national market (see Table 2.3.5). Amongst those in the manufacturing sector, food products, tobacco, textiles, leather, and pharmaceuticals have relatively lower percentage of sales in Kenya, i.e., higher ratio of sales from export. It is also noted that pharmaceuticals sales are earned largely from outside of the national and the East African Community (EAC) markets. Other non-metallic mineral products, basic metals, fabricated metals, and electrical equipment have larger percentage of sales to the EAC market. As predicted from export performance, food processing leads the marketing with the “rest of the world”. Others with higher ratio of export to non-EAC markets are textiles, wearing apparel, and other manufacturing.

2-10 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 2.3.5: Value of Sales per Industrial Activity and Percentage of Sales per Destination Value of Sales to Various Regions % of Destinations (%) (KES million) Rest of Rest of Total Kenya EAC the Kenya EAC the World World Mining of metals ores 1,226 1,226 - - 100.0 - - Other mining and quarrying 11,983 5,772 277 5,934 48.2 2.3 49.5 Manufacturing 885,358 725,124 54,386 105,848 81.9 6.1 12.0 Manufacture of food products 324,839 241,012 9,330 74,497 74.2 2.9 22.9 Manufacture of beverages 56,330 53,555 2,252 523 95.1 4.0 0.9 Manufacture of tobacco 14,428 7,929 5,499 1,000 55.0 38.1 6.9 products Manufacture of textiles 27,030 20,603 619 5,808 76.2 2.3 21.5 Manufacture of wearing apparel 14,977 12,413 261 2,303 82.9 1.7 15.4 Manufacture of leather and 14,962 10,086 2,650 2,226 67.4 17.7 14.9 related products Manufacture of wood and of products of wood and cork, 24,973 24,343 595 35 97.5 2.4 0.1 except furniture Manufacture of paper and paper 28,710 25,085 2,309 1,316 87.4 8.0 4.6 products Printing and reproduction of 53,511 50,845 224 2,442 95.0 0.4 4.6 recorded media Manufacture of coke and refined 4,697 4,515 182 0 96.1 3.9 - petroleum products Manufacture of chemicals and 63,589 55,456 5,447 2,686 87.2 8.6 4.2 chemical products Manufacture of pharmaceuticals, medicinal, chemical, and 16,994 7,942 2,145 6,907 46.7 12.6 40.7 botanical products Manufacture of rubber and 50,331 45,552 3,675 1,104 90.5 7.3 2.2 plastics products Manufacture of other 52,252 44,651 6,359 1,242 85.4 12.2 2.4 non-metallic mineral products Manufacture of basic metals 37,970 32,049 4,212 1,709 84.4 11.1 4.5 Manufacture of fabricated metal products, except machinery and 39,316 33,965 4,458 893 86.4 11.3 2.3 equipment Manufacture of computer, 930 911 19 0 97.9 2.1 - electronic and optical products Manufacture of electrical 10,983 8,857 1,972 154 80.6 18.0 1.4 equipment Manufacture of machinery and 12,075 11,188 740 147 92.7 6.1 1.2 equipment n.e.c. Manufacture of motor vehicles, 15,261 14,026 1,235 0 91.9 8.1 - trailers and semi-trailers Manufacture of other transport 305 305 0 0 100.0 - - equipment Manufacture of furniture 13,989 13,928 56 5 99.6 0.4 0.0 Other manufacturing 6,910 5,909 149 852 85.5 2.2 12.3 Export-oriented both EAC/non EAC with both EAC and non EAC share are large EAC-oriented with share of EAC more than 10% Non-EAC oriented with "the Rest of the World" share more than 10% Source: JICA Study Team based on KNBS (2013) Census of Industrial Production

2-11 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Geographical Distribution of the Manufacturing Sector

The geographical distribution of the manufacturing sector is analysed using the number of employees in this sector in major cities. Major concentration can be found in Nairobi, which forms further agglomeration with surrounding areas (Figure 2.3.3). This can be attributed to the concentration of various government and economic functions in Nairobi as well as the distribution of population as workforce and the market which are rather skewed with the central to the western side of the country.

No. of Employees

160000 148105 140000 120000 100000

80000 66168 60000 40000 14900 19463 18048 20000 11023 11639 6628 9104 0

Source: JICA Study Team based on KNBS (2013) Census of Industrial Production Figure 2.3.3: Number of Employees in the Manufacturing Sector in Major Urban Areas

(3) Mining Sector

Mining is a substantial industrial sector of Kenya. Across the country, Kenya’s best mineral resources have been limestone, soda ash, and fluorspar. Especially in Mombasa, limestone collection leads the establishments of cement factories. At the same time, the titanium is another mining resource. Some firms are operating in Mombasa for collection and trading of titanium.

2.3.3 Service Sector

(1) Transportation and Storage

The sector’s share in GDP in recent years is around 7%. The increasing trade volume of the region indicates the expanding demand for the sector. Ongoing mega projects such as the construction of the standard gauge railway, corridor development programs such as Lamu Port and South Sudan Ethiopia Transport (LAPSSET) are also expected to boost economic activities under the sector.

In the business of forwarders and clearing agents, there are a number of companies involved. Most of the business remains small. On the other hand, large warehouses are sometimes

2-12 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report owned by major manufacturing companies5. An analysis indicates that large players have been integrating the businesses of transportation, forwarding and shipping in order to cover some deficiencies of public services incurred by inefficient port and customs services and to streamline the flow of goods6.

(2) Tourism

The tourism sector is one of the major foreign currency earning industries of Kenya. Table 2.3.6 below shows the estimated impact of the tourism sector in 2013. The economic impact is not limited to direct earning from transportation, accommodation and food, retail and other recreational services, but induced further external economic activities such as spending and housing of employees of the industries. Table 2.3.6 also shows the projection in 2024 where the amount of industry’s direct contribution to GDP grow over 5% per annum.

Table 2.3.6: Kenya’s Tourism Industry’s Projection and Impact on the Economy 2013 2024 Projected Annual Share in Share in Growth Rate Actual Projection Total (%) Total (%) (2013-2024) Direct Contribution to GDP 183.4 4.8 314.1 4.7 5.2 (KES billion) Total contribution to GDP 426.8 12.1 791.4 11.8 5.2 (KES billion) Direct contribution 226 4.1 284 4.0 2.3 to employment (‘000 jobs) Total contribution 590 10.6 737 10.3 2.3 to employment (‘000 jobs) Visitor exports (KES billion) 161.3 17.3 272.1 12.2 5.2 Domestic spending 156.3 4.1 274.1 4.1 5.3 (KES billion) Leisure spending 207.8 3.1 350.1 2.9 5.2 (KES billion) Business spending 109.8 1.7 196.1 1.7 5.5 Capital spending 55.8 7.6 96.2 7.4 5.4 Note: Shares in total indicate the share to the national total of the relevant indicators. Visitor export is shown relative to total export of goods and services. Domestic spending, Leisure spending and Business spending are expressed relative to whole GDP. Capital investment is relative to total domestic investment. Source: World Travel and Tourism Council (2014), Travel & Tourism: Economic Impact 2014 Kenya

Mombasa is the leading tourist destination in Kenya. A mass of visitors and tourism-related industries can be also regarded as a market. In 2013, 194,000 visitors arrived at the Moi International Airport. Although the number declined mainly due to security concerns, the amount of hotel bed-nights in the coastal beach accounted for 41.7% of the country’s total7. Linkages may be expected from the tourism industries in terms of market provision, human resources in the hospitality industry, and procurement of various hotels, and tourism-related activities and other impact incurred by the locally-employed population.

5 Based on the interview with Kenya International Freight & Warehousing Association. 6 World Bank (2005) Kenya: Issues in Trade Logistics 7 KNBS (2014) Economic Survey 2014

2-13 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Opportunities are identified in untapped potentials such as eco-tourism, culture, conference and cruise. New set of clienteles should also be targeted, for example, domestic and regional tourists and international tourists from newly emerging economies.

On the other hand, current infrastructure, business environment, and human resources may be a weakness. In addition, security issues can be one of the major concerns8.

2.4 Investment

2.4.1 Investment Performance

In comparison to its high GDP volume, the level of investment remains lower relative to the peers. The value of gross fixed capital investment and the ratio to GDP of EAC countries as a benchmark in the last ten years is shown in Figure 2.4.1. Kenya has the 2nd highest gross fixed capital formation in terms of nominal value in the EAC, but the its ratio to GDP is the lowest in the EAC at 23% in 2014.

10,000 Tanzania, 40.0% 9,302 Kenya Tanzania Uganda Rwanda Burundi 35.0% 8,000 Kenya, 30.0% 8,305 6,000 Uganda, 25.0% 4,536 20.0% 4,000 15.0% Rwanda, 10.0% 2,000 1,452 Burundi, 5.0% 0 359 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Value (Million USD in Constant 2005 USD)* Ratio to GDP Source: JICA Study Team based on the KNBS and WDI Note: * As the dollar term value of gross capital formation of Kenya adjusted to the rebased GDP was not available at the time of reporting, the figure before rebasing is used for the value figure. Figure 2.4.1: Comparison of Gross Fixed Capital Formation of Kenya and Peer Countries

Although limited in terms of coverage due to the requirement of the Investment Promotion Act and changes of rules regarding investment licensing, the breakdown of investment registered at the KenInvest is shown in Figure 2.4.2 below.

8 GOK, National Tourism Strategy 2013-2018

2-14 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

0.6% 0.4% 0.3% 0.1% 1.6% 0.0% CONSTRUCTION

4.9% ENERGY 5.7% SERVICE MANUFACTURING 10.0% 37.4% AGRICULTURE TOURISM MINING 12.0% ICT Education TELECOMMUNICATION 12.4% 14.6% HEALTH TRADE

Source: JICA Study Team based on the data of KenInvest Figure 2.4.2: Sector Share of Total Registered Value of Capital for Investment

A large portion of cumulative amount of capital registered at the KenInvest is found in the construction sector. As seen in Figure 2.4.3, on the other hand, the manufacturing sector exhibits higher capacity in employment creation.

No. of Employees 16000 14000 12000 10000 8000 6000 4000 2000 0

Expatriates Local

Source: JICA Study Team based on the data of WDI Figure 2.4.3: Employment Creation by Sector

Investors in the export processing zone (EPZ) are registered separately with their data compiled separately. The share of industries in the cumulative value of investment from 2007 to 2012 is shown in Figure 2.4.4.

2-15 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Garments

1% Agro processing 1% Services 1% 0%

2% Printing 2% 4% Food processing 5% 31% Beverage/spirit

5% Minerals/gemstones

Pharmaceticals & medical supplies 7% Chemicals

1% Spinning

Dartsboard 9% 11% Plastics

9% Relief supplies 11% Electriclas

Garments support services

Other . Source: JICA Study Team based on the data of EPZA Figure 2.4.4: Cumulative Investment Value to EPZ per Industry

The annual investment to EPZ is shown in Figure 2.4.5 below. The share of garment has declined gradually, whereas sectors such as agro-processing and services have increased share.

(Million Ksh) Other 45,000 Garments support services Electriclas 40,000 Relief supplies

35,000 Plastics Dartsboard 30,000 Spinning Chemicals 25,000 Pharmaceticals & medical supplies Minerals/gemstones 20,000 Beverage/spirit Food processing 15,000 Printing 10,000 Services Agro processing 5,000 Garments

0 2007 2008 2009 2010 2011 2012 Source: JICA Study Team based on the data of EPZA Figure 2.4.5: Value of Investment to EPZ per Industry

2.4.2 Foreign Investment Trend in Kenya

(1) Foreign Direct Investment (FDI) Inflow

Figure 2.4.6 below shows the trend of FDI inflow to Kenya since 2005. The jump in 2007 is due to heavy investment related to privatisation in the telecommunication and railway sectors. Although the annual flow shows high volatility, the flow is gradually increasing over the years, and FDI is steadily building up.

2-16 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Inward Stock Inward Flow Million Current USD Million Current USD 4,000.0 800.0

3,500.0 3,390.2 700.0

3,000.0 600.0

2,500.0 500.0

2,000.0 400.0

1,500.0 300.0

1,000.0 200.0

500.0 100.0

0.0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 Inward Stock Inward Flow

Source: UNCTAD STAT Figure 2.4.6: Trend of Inward FDI Flow and Stocks in Kenya

However, it should be noted that the inflow of the FDI to Kenya is lower than Tanzania and Uganda (see Figure 2.4.7).

(million US$) 2000 1800 1600 1400 1200 Kenya 1000 Tanzania 800 600 Uganda 400 200 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: JICA Study Team based on WDI Figure 2.4.7: FDI Inflow in the Three EAC Countries

Despite limitation of data, the breakdown of domestic and foreign investment trend indicates preference in the construction sector. According to the UNCTAD World Investment Report 2013, the international trend shows that FDI toward EAC currently targets mainly sectors such as the infrastructure, telecommunication, and financial sectors, with the manufacturing sector in approval base. Another trend of FDI toward Sub-Saharan Africa highlighted by the same report is investment toward such sectors capturing growing local market9. Corresponding

9 UNCTAD (2013) World Investment Report

2-17 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report trend is also observed in FDI toward Kenya which include some consumer goods such as cosmetics10.

(2) FDI Outflow

Figure 2.4.8 below shows the trend of FDI outflow from Kenya to the world since 2005. Shortly after the Global Economic Crisis in 2008/2009, a conservative move in outflow was seen. Although, the stock volume has been steadily growing since 2005 and the volume of outward FDI stock in 2013 has more than doubled its volume in 2015.

OutwardStock Outward Flow Million Current USD Million Current USD 350.0 50.0 321.3 45.0 300.0 40.0 250.0 35.0 30.0 200.0 25.0 150.0 20.0

100.0 15.0 10.0 50.0 5.0 0.0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 Outward Stock Outward Flow

Source: UNCTAD STAT Figure 2.4.8: Trend of Outward FDI Flow and Stock in Kenya

2.5 Foreign Trade

2.5.1 Foreign Trade Structure

The export and import trend is shown in Figure 2.5.1 below. The total value of export is steadily growing but the growth rate of import is much higher. In 2014, the value of import is 1.8 times larger than that of export reflecting Kenya’s trade structure. While import heavily relies on energy sources and manufactured value-added goods, export is limited to commodity or labour-intensive goods.

10 JETRO (2010) “Sub-Sahara Africa Shuyo Koku no Shohi Shijo”(Consumer Market in Major Sub-Sahara African Countries) introduced an example of such investment by cosmetics industry.

2-18 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 1,400,000 Exports of goods and services (constant Million LCU) 1,200,000 Imports of goods and services (constant Million LCU)

1,000,000

800,000

600,000

400,000

200,000

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: WDI, WB Figure 2.5.1: Trend of Export and Import in Kenya

2.5.2 Major Trading Goods and Destination

(1) Major trading goods

Table 2.5.1 below shows the major exported and imported goods in Kenya. Kenya relies most of its exports on commodity trade. Value addition to commodity has not been seen extensively. Besides, the value of export in manufacturing is limited to a small amount in Kenya. The value of tea export is the highest in Kenya and its value is also the fourth highest in the world11. Cut flowers and coffee are also ranked amongst the highest in their trading volumes in the world. Kenya is a net importer of oil. There is high demand for telephone sets and also motor cars.

Table 2.5.1: Major Exporting Goods of Kenya and its Traded Values in 2010 Export Import Item Value (USD 1,000) Item Value (USD 1,000) Petroleum Oils (Other than Tea 1,163,630 1,646,343 Crude) Cut Flowers 396,239 Petroleum Oils (Crude) 915,169 Coffee 207,473 Telephone Sets 520,046 Petroleum Oils 205,151 Aircraft 453,203 (Other than Crude) Vegetables 150,251 Palm Oil 451,960 Gold 112,374 Motor Cars 345,470 Carbonates 95,464 Medicaments 269,613 Portland Cements 94,638 Flat-rolled Iron Products 269,028 Cigars, Tobacco 92,712 Wheat and Meslin 219,687 Motor Vehicles for Palm Oil 83,503 186,553 Transport of Goods Source: UN COMTRADE (2) Major trade partners

Figure 2.5.2 below shows the major trade partners of Kenya and their share. In terms of export, neighbouring countries such as Uganda and Tanzania are two major partners,

11 FAOSTAT DATABASE 2011

2-19 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report accounting for over 20% of the total trade. These countries import oil, cement, medicaments, flat-rolled iron, and other commodities such as salt and sugar from Kenya. Most of these are transhipped through Mombasa Port and they are exported to Uganda and Tanzania via inland transportation, mostly on road. The Netherlands is ranked third due mainly to its large volume of cut flowers by air freight. Before reaching the world market, the cut flowers in Kenya reach the flower auction zone in Amsterdam. Other shipments to the Netherlands include vegetables and fruit juices. The United Kingdom (UK) is one of the major destinations of tea, vegetables, and cut flowers. The United States of America (USA) experiences a high share of garment imports from Kenya, utilising the incentives provided by the African Growth and Opportunity Act (AGOA).

Kenya imports over 50% of its import value from six countries, namely, India, China, the United Arab Emirates (UAE), Saudi Arabia, USA, and Japan. Major imports from India are petroleum medicaments, and telephone sets. China sells a large amount/value of telephone sets to Kenya. UAE and Saudi Arabia are main exporters of oil to Kenya. Kenya imports aircrafts and spacecrafts from USA, which are the largest import items by value. Japan is the largest exporter of motor vehicles to Kenya. Japan accounts for 73% of all motor car imports and 63% of motor vehicles for transport.

Uganda India 13% 14% Tanzania 9% Others China Others 34% UK 12% 40% 8% Netherlands UAE Germany 6% Germany UK 11% 3% 2% UAE 3% South Africa Saudi Arabia Rwanda USA 5% Indonesia 4% 5% Egypt Pakistan Japan USA 3% 5% 4% 4% 5% 5% 5%

Export Import Source: Economic Survey 2014, KNBS Figure 2.5.2: Major Trade Partners and Their Share (2012)

2.6 Kenya’s Position in the East and South African Region

2.6.1 Regional Economic Blocs and Kenya

Figure 2.6.1 below shows the network of regional associations in Africa and the Middle East. Kenya belongs to the group of EAC and Common Market for Eastern and Southern Africa (COMESA). These regional associations may open Kenya’s opportunities for economic expansion.

2-20 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: World Bank, 201112, modified (updated) by the JICA Study Team Figure 2.6.1: Network of Plurilateral Groupings in Africa and Middle East

(1) EAC

The current EAC was established on 7 July 2000 with three original countries, namely, Kenya, Tanzania, and Uganda. Later, Rwanda and Burundi joined in 2007. The headquarters of EAC is located in Arusha, Tanzania. The organisation of EAC consists of the following seven organs:  The Summit  Council of Ministers  Coordination Committees  Sectoral Committees  East African Court of Justice  East African Legislative Assembly  The Secretariat

The objective of EAC is “to develop policies and programmes aimed at widening and deepening co-operation amongst the Partner States in political, economic, social, and cultural

12 Acharya, Rohini, Jo-Ann Crawford, Maryla Maliszewska, and Christelle Renard. 2011. “Landscape.” In Handbook on Preferential Trade Agreements, edited by J. P. Chauffour and J. C. Maur. Washington, DC: World Bank.

2-21 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report fields, research and technology, defence, security and legal and judicial affairs, for their mutual benefit”13.

(2) COMESA

COMESA has 19 member countries in the Eastern and Southern African regions. The region covers a wide area of networks but the connectivity in the region is not as intimate as EAC. COMESA’s current strategy is to achieve economic prosperity through regional integration.

(3) COMESA, EAC, SADC Tripartite Regional Cooperation and Integration

The discussion of tripartite cooperation started in 2005 with regular meetings. In October 2014, the head of states/governments who chair the three organisations, respectively signed the Memorandum of Understanding on Inter Regional Cooperation and Integration (MOU) for the furtherance of existing efforts. The MOU first stipulates the agreement on establishment of a free trade area amongst the three regional economic communities, enhanced economic cooperation, promotion of industrialisation and intraregional investment. It further stipulates the establishment of a coordination mechanism including the Summit, Council of Ministers, Sectoral Ministerial Councils, Ministerial Committees, and Task Force of the Secretariats14.

(4) EAC-EU Economic Partnership Agreement

EAC and the European Union (EU) agreed to form a region-to-region comprehensive Economic Partnership Agreement (EPA) on October 2014. The EPA is expected to be signed in the summer of 2015. Then, 5 member states in the EAC and 28 Member States in the EU will be able to benefit from deregulated economic activities such as duty free quota free access, harmonisation of customs legislation, and many others. EU region as a total is the biggest export destination of Kenya and it accounts for 20.6% of the total export.15

2.6.2 Trend of the National Economies of Neighbouring Countries

Kenya’s economic neighbours are Burundi, Rwanda, Uganda, Tanzania and Ethiopia. Figure 2.6.2 below shows the level of GDP of neighbouring countries in East Africa. For statistical purposes, newly-established South Sudan is excluded from the list. Notice that Kenya has the highest GDP in this economic group. The region as a whole has a total population of more than 247 million people and the total GDP (2013, Current USD) sums to more than 100 billion USD.

13 EAC Treaty, Chapter 2, Article 5 14 Memorandum of Understanding on Inter Regional Cooperation and Integration Amongst Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), and Southern African Development Community (SADC) 15 Delegation of the European Union, “Trade between the EU and Kenya - Information on the EAC-EU Economic Partnership Agreement”, April 2015 Edition

2-22 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

30,000 USD

25,000 Million

20,000 Burundi Rwanda 15,000 Uganda Tanzania 10,000 Ethiopia Kenya 5,000

0 2009 2010 2011 2012 2013

Source: WDI, WB Figure 2.6.2: GDP of Kenya and Neighbouring Economies

The composition of Eastern and Southern Africa encompasses countries with various status of economic development. As shown in Figure 2.6.3 below, the size of Egypt’s economy is outstanding.

Million US$

250000

200000

150000 Service Industry 100000 Agriculture 50000

0 Lybia Egypt Kenya Sudan Congo Eritrea

Malawi Zambia Uganda Djibouti Rwanda Burundi Ethiopia Tanzania Comoros Mauritius DR Swaziland Zimbabwe Seychelles Madagascar Note: Djibouti: 2007, Comoros, Eritrea, Madagascar: 2009, Malawi, Swaziland: 2011 Source: JICA Study Team based on WDI Figure 2.6.3: Composition of GDP per Industrial Sector of COMESA Members and Tanzania (2012)

The degree of manufacturing also varies. Figure 2.6.4 shows an estimate of the degree of the manufacturing sector’s development and significance in their national economies. Except for Egypt and South Africa, Kenya is a key manufacturing country in the region although the percentage of the manufacturing sector against the respective GDP may not be very high.

2-23 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

18 Zimbabwe 16 Added

14 12

Value Kenya 10 Uganda Tanzania (%)

Burundi 8 Zambia GDP 6 Rwanda to DR Congo 4 Ethiopia 2 Manufacturing of 0 % 0 500 1000 1500 2000 2500 3000 3500 4000 Manufacturing Value Added (Million US$)

Source: JICA Study Team based on the data of WDI Figure 2.6.4: Manufacturing Value Added and the Ratio to GDP of Selected Eastern and Southern African Countries

2.6.3 Kenya and the Regions’ Demand Structure and Size

Figure 2.6.5 shows the Kenya and the East and Southern African Regions’ consumption volume compared to other economies. The total consumption volume in this Region is almost equivalent to the consumption volume of Vietnam. Their growing trend is also similar in the past years.

billionUS$ 300

250 Kenya

200 SUM of East and Souther African Countries 150 South Africa

100 Vietnam

50 Thailand

0 Year

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Note: “Sum of East and Southern African Countries: EAC members and Malawi and Zambia Source: JICA Study Team based on the data of World Development Indicators Figure 2.6.5: Comparison of Household Consumption

A major portion of consumption is taken by consumption of food. Other industries which indicate relatively higher ratio of value addition in the gross output are beverage, wearing apparel, leather products, and printing, with more than 40% value addition to gross output.

2-24 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Food and non‐alcoholic beverages 3% 9% Alcoholic beverages, tobacco and narcotics 4% Clothing and footwear

Housing, water, electricity, 10% gas and other fuels Health 3% Transport 59% 8% Communication

Education 3% 1% Restaurants and hotels

Source: JICA Study Team based on the data of UN Figure 2.6.6: Composition of Kenya’s Household Individual Consumption

2.6.4 Trade with Neighbouring Countries and Kenya’s Competitiveness

With the expanding economies in the region, trade volume has been increasing largely in the region.

(Million US$) (Million US$) Export Import 80000 Ethiopia 80000 70000 70000 Ethiopia Congo, Dem. 60000 Rep. 60000 Congo, Dem. Rep. 50000 Burundi 50000 Burundi 40000 40000 Tanzania 30000 Tanzania 30000 Rwanda 20000 Rwanda 20000 10000 10000 Uganda Uganda 0 0 Kenya Kenya 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: JICA Study Team based on the data of WDI Figure 2.6.7: Trade Volume of Kenya and Neighbouring Countries

Although EAC and COMESA remain important trade partners especially for export, the ratios to the total value of export or import of Kenya are rather stagnant in recent years (see Figure 2.6.8).

2-25 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

40.0%

35.0%

30.0%

25.0%

20.0% COMESA Export 15.0% EAC Export

10.0% COMESA Import EAC Import 5.0%

0.0% 2009 2010 2011 2012 2013 2014

Source: Economic Survey 2015, KNBS Figure 2.6.8: Ratios of Export and Import toward and from EAC and COMESA to Kenya’s Total Export/Import

The EAC and COMESA market is an important market for Kenya’s manufacturing goods. As seen in the case of plastic and steel products, the share of EAC and COMESA as the major outlet of some Kenya’s products is significantly high. This is partially due to the level of development of the manufacturing sector in these countries as seen before.

Table 2.6.1: Kenya’s Export Value of Plastic and Iron and Steel Products and Their Share of EAC and COMESA Plastic Plate, Sheets, Film, Foil Iron and Steel Bars, Rods, Angles, etc. Year 2008 2009 2010 Year 2008 2009 2010 EAC and COMESA EAC and COMESA SITC 24.78 22.14 30.56 SITC 14.38 11.91 15.63 582 Total (USD million) 676 Total (USD million) Total (USD million) 29.06 24.99 32.88 Total (USD million) 18.70 13.69 19.02 % Share of EAC % Share of EAC and 85.3 88.6 92.9 76.9 87.0 82.2 and COMESA (%) COMESA (%) Source: JICA Study Team based on UN-COMTRADE

2.7 Situation of Mombasa and Its Industrial Development

2.7.1 Demographics of Mombasa County

(1) Outline

Mombasa is located in the south-eastern part of Kenya, facing the Indian Ocean, and it serves as the sea lane gateway of Kenya to the world. It is 400 km southeast of Nairobi and 80 km north of the border of Tanzania. Administratively, Mombasa City is one of the 47 counties in Kenya. The county status given to an individual city is limited to Mombasa, Nairobi, and Kisumu following the County Government Act in 2012. The division of administrative constituencies within the city county is the same as the old Municipal Council shown in Figure 2.7.1.

2-26 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Mombasa is the second largest city in Kenya. Most of the city functions are concentrated chiefly within the Mombasa Island. The island is connected to Kisauni and Changamwe via three bridges/causeways. Mombasa island currently connected to the southern coast by the ferry service.

Source: JICA Study Team Figure 2.7.1: Administrative Constituencies in Mombasa County

(2) History

Historically, Mombasa has been regarded as one of the key international ports in the East African region along with the port towns in Mozambique and Tanzania. The Portuguese Empire occupied Mombasa in 1592 and managed the city for 100 years.

With the downfall of influence of Portugal in Asia and Africa, Mombasa became under the rule of the Sultanate of Oman. In this time period, citizens of Mombasa became mostly Muslim. Oman controlled Mombasa for the next 200 years until the end of the 19th century.

At the end of the 19th century, the British Empire set up the East African Company and started its rule of East Africa. In 1896, the British decided to build a railway from Mombasa to Victoria Lake. This railway is supposed to be the trade line connecting Mombasa Port to the inner British colonial areas. Railway construction started in May 1896, and the 582-mile meter gauge railway line from Mombasa to Kisumu was completed in December 1901. In the beginning, local workers were employed for the construction, but later, Indian workers who

2-27 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report constructed the railway in India were brought to Kenya to complete the construction. After 1898, over 30,000 Indians were employed for the construction.

Under the British rule, the first capital of Kenya was established in Mombasa. Then, the capital was moved to Nairobi in 1905 and continued to be the capital of Kenya after its independence in 1963. Mombasa sustained the growth of Kenya as one of the major economic cities and as the gateway of Kenya to external economies.

(3) Religion and Culture

According to the Census of 2009, the Protestant religion has the highest share of Kenya’s population. The Muslim population is concentrated in Mombasa due to historical reasons explained above. In addition, Hindu communities are relatively large in these regions since many Indians reached Kenya.

100% 90% Don't Know 80% No Religion 70% Other Religion 60% Traditionalist 50% Hindu 40% Muslim 30% Other Christian 20% Protestant 10% Catholic 0% Kenya NAIROBI MOMBASA

Source: KNBS Figure 2.7.2: Composition of Religious Beliefs

(4) Population in Mombasa

Mombasa City County is subdivided into four constituencies. Mombasa Island is crowded having a population density of over 10,000 persons per km2. Other constituencies have a density of 3,500–5,000 km2, which is about one third to a half of the island.

Table 2.7.1: Mombasa County Demographics in 2009 by Constituency Area Density Constituency Male Female Total Households (km2) (per./km2) Changamwe 147,989 134,290 282,279 86,528 54 5,214 Kisauni 209,294 196,636 405,930 112,331 115 3,545 Likoni 92,476 83,532 176,008 53,351 43 4,078 Mvita (Mombasa Island) 37,165 37,988 75,153 16,490 7 10,670 TOTAL 486,924 452,446 939,370 268,700 219 4,289

2-28 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Source: KNBS

Since 1979, the population in Mombasa County has been increasing at over 3% per annum. If the population of Mombasa County continues to grow at the rate of 3.2% per annum, the population will reach 1.8 million by 203016.

Table 2.7.2: Population Growth in Mombasa County Item 1979 1989 1999 2009 Total Population 336,148 461,753 665,018 939,370 Average Annual Growth Rate (%) - 3.23 3.72 3.51 Source: KNBS

2.7.2 Mombasa’s Industrial Base: Structure and Resources

(1) Industrial Structure of Mombasa

The industrial structure in Mombasa has been analysed through the number of establishments and employees. The number of establishments with more than ten employees and the number of employees of such establishments in Mombasa County are shown in Table 2.7.3 below17.

Table 2.7.3: Establishments with More than Ten Employees per Industry in Mombasa County Establishment Employment Ratio in Total Employment Agriculture, Forestry and Fishing 4 11,525 14% Industry 138 22,655 28% Service 960 45,959 57% Source: KNBS

Further breakdown is show in Figure 2.7.3 below.

16 As referred in Chapter 3, UN-DESA projects population growth of Mombasa from 940,000 in 2010 to 1.4 million and 1.78 million in 2020 and 2025, respectively. 17 Due to the difference of source and methodology of collecting statistics, the number does not coincide with the labour force data in 1.3.

2-29 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Public administration and Human Arts, entertainment Other service and defence Administrative and health and and recreation activities 0% support services activities social work 1% 1% 3% Tourist Related activities Administration Professional, scientific Education 4% 0% and technical activities 1% 2% Real estate Mining and quarrying Financial and 0% insurance activities Agriculture, forestry 1% 4% and fishing 14% Accommodation and food service activities 10% Information and communication Manufacturing 1% 26%

Transportation and storage 24%

Electricity, water supply, Wholesale and retail sewerage, waste trade and repair Construction management 6% 1% 1% Source: JICA Study Team based on the data of KNBS Figure 2.7.3: Breakdown of Number of Employee of Establishments with More than Ten Employees in Mombasa County

The comparison of distribution of industrial establishments with more than ten workers across the sector between Mombasa and Nairobi indicates that diversity of the types of industries is limited in Mombasa as compared with Nairobi18. Similarly, the variety of manufacturing activities is also limited in Mombasa, which may be a reason for concentration of a limited number of activities.

The top ten manufacturing activities with the most employees in Mombasa and Nairobi are listed in Table 2.7.4. The data does not include EPZ firms. Therefore, the size may be a good reference to the size of industry targeting the national and the regional markets. Apart from consumer products, the size of employment is smaller in Mombasa. One outstanding sector is consumer products. Such products utilise chemicals as well as palm oil. Both are imported but may be naturally located in the vicinity of the port. Wearing apparel also shows more significance in Mombasa although its size is larger in Nairobi.

18 Due to the difference of the data source, the data used in 1.3 and this section may not necessarily coincide.

2-30 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 2.7.4: Sectors with Largest Employment Mombasa Nairobi ISIC No. of ISIC No. of Activity Activity Code Employees Code Employees Manufacture of soap and detergents, 2023 cleaning and polishing preparations, 8,085 2220 Manufacture of plastic products 11,577 perfumes and toilet preparations Manufacture of wearing apparel, Manufacture of other food products 1410 2,372 1079 8,682 except fur apparel n.e.c 2410 Manufacture of basic iron and steel 1,839 1071 Manufacture of bakery products 6,515 Manufacture of soap and detergents, 1520 Manufacture of footwear 1,621 1410 cleaning and polishing preparations, 5,836 perfumes and toilet preparations Manufacture of soap and detergents, 2220 Manufacture of plastic products 686 2023 cleaning and polishing preparations, 4,827 perfumes and toilet preparations Manufacture of other fabricated Manufacture of structural metal 2599 614 2511 4,340 metal products n.e.c products Processing and preserving fruit and 1071 Manufacture of bakery products 444 1030 4,203 vegetables Processing and preserving of fish, 1020 421 1811 Printing 4,164 crustaceans and mollusks Manufacture of other articles of paper 1061 Manufacture of grain mill products 404 1709 3,778 and paperboard Manufacture of pharmaceuticals, Manufacture of structural metal 2511 287 2100 medicinal chemical and botanical 3,570 products products Source: JICA Study Team based on the data of KNBS

Logistics business comprises a large portion of employment, whereas Nairobi employs only less than 400 both for warehousing and storage, and cargo handling, Mombasa has more than 2,000 and 3,500 employees working for warehousing and storage, and cargo handling, respectively19.

Despite the fact that more than 70% of exported goods pass through the Port of Mombasa, the size of the wholesale industry has not grown compared with Nairobi. Only wearing apparel wholesalers maintain almost equivalent size with Nairobi, others including those commodities imported largely from the Port of Mombasa such as motor vehicles and construction materials maintain larger volume in Nairobi.

Table 2.7.5: Size of Wholesale Sector (Number of Employees) in Mombasa and Nairobi Mombasa + Ratio of Category Mombasa (A) Nairobi (B) Nairobi Mombasa to (A)+(B)=(C) (C) 4530 Sale of motor vehicle parts and accessories 346 957 1,303 26.6 Sale, maintenance and repair of motorcycles and 4540 0 75 75 - related parts and accessories 4610 Wholesale on a fee or contract basis 44 254 298 14.8 Wholesale of agricultural raw materials and live 4620 0 3797 3,797 - animals 4630 Wholesale of food, beverages, and tobacco 531 1593 2,124 25.0 4641 Wholesale of textiles, clothing, and footwear 105 139 244 43.0 4649 Wholesale of other household goods 189 2298 2,487 7.6 4651 Wholesale of computers, computer peripheral 0 159 159 -

19 Data provided by KNBS

2-31 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Mombasa + Ratio of Category Mombasa (A) Nairobi (B) Nairobi Mombasa to (A)+(B)=(C) (C) equipment and software Wholesale of electronic and telecommunications 4652 106 534 640 16.6 equipment and parts Wholesale of agricultural machinery, equipment 4653 39 259 298 13.1 and supplies 4659 Wholesale of other machinery and equipment 80 777 857 9.3 Wholesale of solid, liquid, and gaseous fuels and 4661 32 345 377 8.5 related products 4662 Wholesale of metals and metal ores 141 141 - Wholesale of construction materials, hardware, 4663 520 797 1,317 39.5 plumbing and heating equipment and supplies Wholesale of waste and scrap and other products 4669 95 517 612 15.5 n.e.c 4690 Non-specialized wholesale trade 214 1214 1,428 15.0 Total 2,301 13856 16,157 14.2 Source: JICA Study Team based on the data of KNBS (2) Resources for Major Agricultural Produces in Mombasa and the Surrounding Areas

While Mombasa has a limited amount of land, the surrounding areas produce distinctive agricultural products. Those include fruits, vegetables, nuts, and oil crops depending on reasons such as suitable climatic conditions, cultural background, and availability of demand mainly from hotels and restaurants. Amongst them, products such as coconuts and fruits show some potential of diversified use through value addition. Table 2.7.6 below shows a list of examples of these agricultural products.

Table 2.7.6: Major Agricultural Products in Mombasa, Taita Taveta, Kwale, and Kilifi Production (MT) % Share of value in Product County national production

2012 2013 in 2013 French bean Taita Taveta 1,227 3,514 9.7 Spinach Taita Taveta 4,210 4,589 19.7 Courgette Taita Taveta 513 1,425 27.8 Sweet pepper Taita Taveta 2,179 3,706 7 Lettuce Taita Taveta 706 3,318 76.7 Vegetables Taita Taveta 2,469 1,478 16.2 Aubergine Kilifi 1,206 1,310 14.2 Kwale 207 627 5.4 Kilifi 2,731 2,608 45 Okra Taita Taveta 933 887 21 Bulb onion Taita Taveta 7,806 6,112 7 Banana Taita Taveta 66,337 66,051 9 Kwale 52,574 91,390 18.3 Mango Kilifi 101,655 106,269 14.7 Purple passion fruit Kwale 3,441 14,108 13 Kwale 8,398 41,400 20.8 Orange Kilifi 10,425 10,547 4.8 Fruit Kwale 1,075 3,550 11 Lemon Kilifi 2,302 2,324 11 Kwale 722 2,950 41.9 Lime Kilifi 1,648 1,495 15.9 Kwale 1,819 9,080 25.6 Tangerine Kilifi 3,120 3,376 19 Melon Kilifi 3,103 3,918 3 Kilifi 4,963 5,922 30.1 Nuts Cashew nut Kwale 2,356 5,966 24.3

2-32 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Production (MT) % Share of value in Product County national production

2012 2013 in 2013 Kilifi 33,302 32,804 69.4 Coconut Kwale 8,888 27,053 22.2 Source: Horticultural Crops Development Agency (HCDA) /Ministry of Agriculture (2013) National Horticulture Validated Report 2013

While Mombasa itself is a large-end market, some key facilities for processing livestock products are located in the surrounding areas such as public and private abattoirs in Mombasa and Mariakani for both domestic and export20.

As mentioned earlier in Section 1.3, the Coast area is endowed with fish and marine product reserves although it has yet to be exploited.

2.7.3 Trade and the Port of Mombasa

Cargo traffic in the Port of Mombasa and the Jomo Kenyatta International Airport (JKIA) is shown in Figure 2.7.4. Although the data on JKIA does not distinguish international trade or domestic transportation, air traffic in general shows that there is more loaded traffic than landed. It can be assumed that most of the cargo handle fresh produce and cut flowers. In fact, exported cut flowers alone are 360,000 to 390,000 t in quantity in recent years, the majority of which are exported by air21. On the contrary, the Port of Mombasa handles far more import than export. This situation implies the importance of Mombasa as the port of entry not only for Kenya but also for many inland countries.

'000DwT Tonnes 25,000 250,000

20,000 200,000

15,000 150,000 Import JKIA Landed Export JKIA Loaded 10,000 100,000

5,000 50,000

0 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

Port of Mombasa Jomo Kenyatta International Airport Source: JICA Study Team based on the data of KNBS (2014) Economic Survey 2014 Figure 2.7.4: Direction of the Cargo Handled by the Port of Mombasa and the Jomo Kenyatta International Airport

The percentage of imported and exported value handled by the Port of Mombasa is indicated in Table 2.7.7 below. With the increase in total imported value in recent years, the amount handled at the Port of Mombasa has been increasing.

20 USAID (2011) 21 Statistical number is based on the KNBS (2014) Economic Survey.

2-33 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 2.7.7: Trade Volume of Kenya and Volume Handled by the Port of Mombasa 2009 2010 2011 2012 2013 Export Value Total (FOB, USD million) 323,571 385,441 484,507 479,706 455,689 Export Value Handled by the Port of Mombasa (FOB, USD 130,692 165,216 199,534 188,467 182,051 million) Import Value Total (CIF, USD million) 788,097 947,206 1,300,749 1,374,587 1,413,316 Import Value Handled by the Port of Mombasa (CIF, USD 606,355 715,774 1,030,839 1,079,202 1,136,169 mission) Export Ratio of Value Handled in Mombasa (%) 40.4 42.9 41.2 39.3 40.0 Import Ratio of Value Handled in Mombasa (%) 76.9 75.6 79.2 78.5 80.4 Source: JICA Study Team based on the data of KNBS (2014) Economic Survey 2014 and Kenya Revenue Authority

The quantity of major commodities handled by the Port of Mombasa is listed in the following tables. Table 2.7.8 indicates the quantity handled, whereas Table 2.7.9 and Table 2.7.10 show the value of exported and imported goods, respectively.

Table 2.7.8: Major Export and Import Commodities Handled by the Port of Mombasa Export 000DWT Import 000DWT General Cargo Tea 541 Iron & Steel 1192 Soda Ash 423 Rice 465 Coffee 264 Plastic 398 Tinned Fruits 93 Motor Vehicles & Lorries 366 Beans, Peas, Pulses 34 Paper & Paper Products 300 Tobacco & Cigarettes 28 Ceramic 260 Cloths 23 Chemicals & Insecticides 254 Oil Seeds 28 Sugar 207 Hides & Skins 22 Clothing 132 Fish & Crustacean 16 Fertiliser 80 Rice 7 Vehicle Tyres & Spares 52 Iron & Steel 6 Cereal flour 41 Cotton 4 Edible Vegetables 29 Cashew Nuts 1 Agriculture & Other Machinery 10 Total General Cargo 2068 Total General Cargo 8646 Fluorspar in Bulk 65 Wheat in Bulk 1401 Bulk Oil 62 Clinker 2228 Fertiliser in Bulk 603 Source: KPA Annual Review and Bulletin of Statistics 2014

Table 2.7.9 shows the top 20 exported products in value basis in 2013. Amongst the exported items, the value of tea and coffee is the largest. Wearing apparel especially knitted products (t-shirts) replacing items made from fabric (denim pants) have grown from a negligible amount to a significant value. Generally, all the items have grown drastically.

Table 2.7.9: Value of Major Commodities Exported from the Port of Mombasa (USD million) HS Items 2005 2013 Code 9 Coffee, tea, mate and spices 24,989 102,250 62 Articles of apparel and clothing accessories, not knitted or crocheted 2 4,218 Other vegetable textile fibres, paper yarn and woven fabrics of paper 53 547 2,876 yarn 25 Salt, sulphur, earths, and stone 373 2,563 72 Iron and steel 525 1,960 61 Articles of apparel and clothing accessories, knitted or crocheted 2 1,742 10 Cereals 4 1,348 19 Preparations of cereals, flour, starch or milk 8 1,317

2-34 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (USD million) HS Items 2005 2013 Code 8 Edible fruits and nuts 396 1,315 34 Soap, organic surface active agents, washing preparations 111 1,184 64 Footwear 304 1,108 31 Fertiliser 129 1,007 63 Other made up textile articles 241 967 76 Aluminium and articles thereof 597 963 21 Miscellaneous edible preparations 34 884 73 Articles of iron or steel 104 751 87 Vehicles and other than railway 46 672 12 Oil seeds and oleaginous fruits 173 652 17 Sugars and sugar confectionery 178 599 Source: JICA Study Team based on the data of KRA

In terms of import, the value of mineral fuels and oils (petroleum), vehicle, boilers and machinery are larger than iron and steel, which have the largest in volume.

Table 2.7.10: Value of Major Commodities Imported from the Port of Mombasa (USD million) HS Items 2005 2013 Code 27 Mineral fuels, mineral oils 40,655 332,210 87 Vehicles and other than railway 12,977 105,334 84 Nuclear reactor, boilers, machinery and mechanical appliances 10,088 104,166 72 Iron and steel 6,215 66,237 39 Plastics 7,357 56,318 85 Electrical machinery and equipment and parts 3,705 54,579 10 Cereals 4,948 47,929 15 Animal or vegetable fats and oils and their cleavage products 6,134 47,690 73 Articles of iron or steel 1,611 31,605 31 Fertiliser 5,494 27,986 48 Paper and paper board 3,209 21,238 38 Miscellaneous chemical products 2,259 19,093 30 Pharmaceutical products 1,168 16,096 17 Sugars and sugar confectionery 1,225 15,806 40 Rubbers 2,026 14,931 29 Organic chemicals 1,540 11,456 94 Furniture, beds, mattresses, etc. 997 11,347 76 Aluminium and articles thereof 1,295 10,451 63 Other made up textile articles 1,536 10,214 25 Salt, sulphur, earths and stone 316 9,586 Source: JICA Study Team based on the data of KRA

2.8 Outline of National and County Development Planning

This section discusses the outline of national and regional development planning in Kenya and Mombasa City County in particular.

2.8.1 National Development Plan and Relevant Legal Framework

(1) National Long-Term Development Plan

2-35 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report In 2007, Kenya launched its long-term development blueprint called “Kenya Vision 2030 – A Globally Competitive and Prosperous Kenya”22. The aim of Kenya Vision 2030 is to transform Kenya into “a newly-industrialising, middle income country providing a high quality of life to all its citizens in a clean and secure environment”. It has three key pillars, namely, Economic, Social, and Political Governance. More specifically, these will be anchored by the following foundations: macroeconomic stability; continuity in governance reforms; enhanced equity and wealth creation opportunities for the poor; infrastructure; energy; science, technology and innovation; land reform; human resources development; security; and public sector reforms. The vision proposes flagship projects to achieve objectives in each pillar. The vision and its investment projects are monitored and modified every five years with medium-term plans. So far, the first medium-term plan 2008-2012 (MTP1) and the second medium-term plan 2013-2017 (MTP2) have been published and disseminated by the head of the Vision Delivery Secretariat. The current MTP2 aims to continue good-doings from the MTP1, but increasing the scale and pace of economic transformation. MTP2 targets successful implementation of the enablers or foundations which include: infrastructure; ICT; science technology and innovation; land reforms; human resource development; labour and employment; security; public sector reforms; national values and ethics; and ending drought emergencies.

(2) Relevant Legal Framework

The Constitution of Kenya (2010)

The Constitution of Kenya (2010) stipulates the state and county as the two tiers of governance for public administration. According to Article 66 of the Constitution, the state may regulate the use of any land, or any interest in or right over any land, in the interest of defence, public safety, public order, public morality, public health, or land use planning. This allows the state to go into planning of national land. Also, Article 185 of the Constitution states that the county assembly may receive and approve plans and policies for the management and exploitation of the county’s resources, infrastructure, and institutions.

Also the Fourth Schedule stipulates the roles of the state and county governments as to planning issues, which includes the state’s role for coordination of land use planning; and the county government’s role in making the plan and its implementation.

Thus, the Constitution stipulates the main point and disciplines in regard to state and county planning, and leaves the details to be dealt with in other related acts.

22 GOK, Kenya Vision 2030 - A Globally Competitive and Prosperous Kenya, October 2007

2-36 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report County Government Act

The County Government Act of 2012, which has adapted to the Constitution’s state and county structure in relation to devolution, stipulates the county planning issues in Part IX.

The County Government Act declares the county integrated plan to be central to the county’s administration and prohibits any public spending outside the plan. The act clarifies that the County Integrated Plan be broken down into economic plan, physical plan, social environmental plan, and spatial plan. Also, the act states that the county plan includes the following:  County integrated development plan  County sectoral plans  County spatial plan  Cities and urban areas plans as stipulated in the Urban Areas and Cities Act

Urban Areas and Cities Act

[Article 36]

This Act of 2011 classifies urbanised areas into a city when the population exceeds 500,000; a municipality when it exceeds 250,000; or a town when it exceeds 10,000, and requires the city and municipality to formulate an integrated development plan.

One of the characteristics of the act is to require the integrated development plan in the central pillar in public administration of the city or municipality. Article 36 states that the integrated development plan is to be the basis for the: 1) preparation of environmental management; 2) preparation of valuation rolls for property taxation plans; 3) provision of physical and social infrastructure and transportation; 4) preparation of annual strategic plans for a city or municipality; 5) disaster preparedness and response; 6) overall delivery of service including provision of water, electricity, health, telecommunications and solid waste management; and 7) preparation of a geographic information system for a city or municipality.

[Article 39]

The strategy plan as stated in 4) above denotes an annual plan to be adopted in the county assembly following the integrated development plan, and the act requires the board of town committee to formulate the strategy plan soon after the adoption of the integrated development plan.

[Article 40]

The integrated development plan as stipulated in the act has to reflect the following: 1) vision for long-term development of the city or urban area; 2) assessment of the existing level of development; 3) any affirmative action measures to be applied; 4) development priorities and

2-37 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report objectives; 5) development strategies, which shall be aligned with any national or county sectoral plans and planning requirements; 6) spatial development framework; 7) operational strategies; 8) applicable disaster management plans; 9) regulated city and municipal agricultural plan; 10) financial plan; and 11) key performance indicators and performance targets.

[Article 41]

The integrated development plan thus formulated is to be submitted to the county executive committee, and the committee has to submit the plan to the county assembly with an opinion within 30 days.

Physical Planning Act

The word physical planning denotes in general all sorts of urban and infrastructure planning, and the Physical Planning Act (2009) thus relates to various aspects of urban planning.

The importance of the act resides on the provision of the authority to control development activities of the local government (namely, the county). Article 29 states that the county has the following authorities:  To prohibit or control the use and development of land and buildings in the interests of proper and orderly development of its area.  To consider and approve all development applications and grant all development permissions.

Also, Article 30 states that no person can carry out development within the area of a local authority without a development permission granted by the local authority.

2.8.2 County Development in Mombasa County

(1) Status of Urban Development Planning in Mombasa City County

Mombasa City County published its 1st County Integrated Development Plan (CIDP) 2013-2017 on 2013 as instructed by the National Government through the County Government Act 2013. The World Bank (WB), through the Kenya Municipal Programme (KMP) prepares assistance to Mombasa County Government to formulate the Geographical Information System (GIS) data as for the basis of the land use plan. In addition, on March 2015, JICA commenced the urban master plan study which consists of the land use and urban transportation planning. The master plan is expected to be complete by March 2017.

(2) Status of Strategic Planning in Mombasa City County

According to the CIDP, Mombasa City County recognizes its SWOT of the current County situation as shown in Table 2.8.1.

2-38 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 2.8.1: SWOT Matrix of Mombasa City County Strength Weakness 1. Quality of life 1. Weak land tenure 2. High quality natural environment 2. Poor road network 3. Landscape 3. Poor development of rail services 4. Abundance of water ways 4. Poor public transport system 5. Significant Catchment Area 5. Lack of implementation/enforcement of 6. Strong entrepreneurial spirit environmental laws 7. Strong arts and culture sector 6. Inadequate health facilities 8. Cultural Distinctiveness 7. Water shortage 9. Leisure and tourism 8. Inadequate education facilities 10. Significant Coastline 9. Weak urban structure 11. Cost of living 10. High dependency ratio Opportunity Threat 1. Unique landscape and natural resources 1. Unemployment 2. Tourism – branding the region 2. Slowed economic growth 3. Sustainable development of natural resources 3. Land degradation, informal settlements and 4. Vast hinterland encroachment on fragile ecosystem 5. Regional and international linkages 4. Disease incidences and prevalence 6. Trade 5. Declining literacy levels 6. Insecurity 7. High unemployment levels 8. Decline of tourism, agriculture, manufacturing, public sector 9. Further weakening of the urban structure and organization 10. Climate change 11. Environmental pollution and degradation Source: CIDP, Mombasa City County

According to the SWOT matrix, Mombasa recognizes its strength as being a leading tourist destination with rich natural and cultural resources. Although regional and international linkages from trading are one of the key opportunities for this coastal city, the County needs improvement in its weaknesses in various infrastructure limitations.

Based on the current analysis, the Mombasa City County sets its strategic objectives as follows:  To fully realize the potential of Mombasa County in the context of its strategic location within the Nation and the Eastern Africa Region, having regard in particular, to the role of the Mombasa port as a driver and catalyst for development within the county and the region.  To facilitate and promote economic development through implementation of the County Economic Development Strategies.  To protect and nurture the county’s rich natural and manmade resources, heritage and other amenities in accordance with relevant legal and policies developed.  To promote greater social inclusion and improvements to the quality of life of all the inhabitants of the county by increase income and employment within the county.  To optimise opportunities for health, education and welfare in recognition of the value of people as a resource to be cherished within families, communities and the economy.

2-39 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (3) Status of Physical Planning in Mombasa City County

Based on the Physical Planning Act, Mombasa City County controls development through development application and permission system. The official website contains the application form for use when permission is desired. The main points to be written in the application form include:  Owner’s name and address  Applicant’s name and address  Outline of proposed development and purpose  Access to and from a road  Method of water supply, sewerage disposal, surface water disposal, refuse disposal, etc.

2.8.3 Past Development Plan for the Dongo Kundu Area

The Kenya Port Authority (KPA) entrusted the planning of Dongo Kundu Port and Industrial Development to a consulting firm called Van Houten in 1989, which resulted in a plan of combining port and industrial development with a free trade zone (FTZ). The plan described then encompasses almost the same area of Mombasa Special Economic Zone at Dongo Kundu today, and a road intersecting in the middle of the area, development of a port in the northern part, and development of a FTZ along the road in the centre in the eastern part of the area, and

the remaining area for industrial zone. The report was out of date and necessary to be update.

2-40 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: Dongo Kundu Port Industrial Development by Van Houten in 1989 Figure 2.8.1: Dongo Kundu Port and Industrial Development Plan by Van Houten in 1989

2.8.4 Development Plan for the Dongo Kundu Area stated in Vision 2030

(1) Special Economic Zone in Mombasa

Kenya Vision 2030 published in 2007 called for Special Economic Cluster (SEC), and selected Mombasa and Kisumu as the location. The reason for selecting Mombasa is its access to the port for easy import of necessary raw materials and exports of finished goods. Kenya Vision 2030 also set a goal for establishing a duty free zone to create a business hub for the Eastern Africa Region and to take advantage of Kenya’s geographical position “to bring Dubai to Kenya”.

The MTP1 adopted the development of two SECs as flagship projects and provided more detailed description. The plan adopted Mombasa SEC as the first priority project in the medium-term plan, which “could include an agro-industrial zone incorporating activities such as blending and packaging of fertilisers, tea and coffee, and a consolidated meat and fish processing facility to encourage growth of offshore fishing”.

2-41 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report In the MTP2, the term SEZ is introduced as one of the flagship projects to strengthen the economic pillar of the Vision 2030. The Dongo Kundu site is specifically identified in the plan for the establishment of SEZ. At the same time Enactment of the SEZ bill is also identified as key policy, legal, and institutional reforms to be made during this term.

(2) Liquefied Natural Gas (LNG) Storage and Regasification Facility and Power Generation

In the Summary of Vision 2030 Investment Projects prepared by the Kenya Investment Authority for the Investment Seminar in London in July 2012, one of the five “investor ready” projects is a liquefied natural gas (LNG) storage and regasification facility and power generation promoted by the Ministry of Energy. This is a combination of USD 380 million for import handling, storage, regasification, and compression facility, and USD 450 million for a 450 MW power plant comprising a combined cycle 2 x 150 MW gas turbines and 150 MW steam turbine. The location is set in Dongo Kundu.

According to hearings with the Ministry of Energy, although a feasibility study for this project has been completed with a total capacity of 495 MW of power generation capacity for Dongo Kundu, the new administration publicised in September 2013 a plan to install a 7,000 MW of power generating capacity in 40 months, and the power generating capacity in Dong Kundu may as well be increased to 700 MW, accordingly.

(3) Tank Farm by the National Oil Corporation of Kenya

According to a summary of key investment opportunities in Kenya prepared by the Ministry of State for Planning, the National Development and Vision 2030 Treasury Building in July 2012, the development of the Mombasa Petroleum Trading Hub being planned by the National Oil Corporation of Kenya (NOCK) shall become a modern petroleum terminal comprising the following: (i) two offshore petroleum jetties (single buoy moorings) with one dedicated to loading/offloading of crude oil and black fuels and the other one to refine products, and (ii) a modern greenfield petroleum tank farm with a design capacity of 800,000 MT to be developed in phases from an initial minimum capacity of 300,000 MT.

NOCK has three candidate sites for the petroleum tank farm including one in the site of the Mombasa SEZ. The project will position Kenya as a regional petroleum hub and will spur other investments and create employment.

2.9 Industrial Development Policy Framework

2.9.1 Past and Current Industrial Development Policy Initiatives

Recent key industrial policies initiatives in Kenya have been developed in line with the national development goal of the time. This section gives an overview of the most recent and ongoing policy frameworks.

2-42 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (1) Master Plan for Kenyan Industrial Development

The Master Plan for Kenyan Industrial Development was developed with JICA’s assistance in 2008 in order to support the national policy initiatives, initially as an Economic Recovery Strategy and later incorporated in the direction provided by Kenya Vision 2030. The master plan identified four ways of strengthening linkages as the key for success of Kenyan industrial development, namely, i) spatial linkage, ii) FDI linkage, iii) industrial linkage, and iv) economic linkage (formalisation of informal economy). It further targets three priority sectors for the short-term priority sectors, namely, agro-processing, agro-machinery, and ICT-electrics and electronics.

The master plan emphasises the importance of balanced spatial development by strengthening industrial corridor from the Port of Mombasa through Nairobi to other parts of the country.

(2) Kenya Vision 2030 and Medium-Term Programmes

The idea of developing specialised industrial and manufacturing areas was conceived in Kenya Vision 2030. The First Mid-Term Programme 2008-2012 envisaged the development of SECs in Mombasa to accommodate industries such as fertiliser, tea, coffee, meat, and fish processing. Mombasa was further designated as a location for small and medium enterprise (SME) parks for agro-processing targeting fruit juice and vegetable oils23.

Under the Second Mid-Term Programme 2013-2017, the implementation of SEZ was continued, especially for Mombasa as a flagship project to fulfil the objectives of manufacturing, trade, and investment promotion24.

(3) Sessional Paper No. 9 of 2012 on the National Industrialisation Policy Framework for Kenya 2012-2030

Following the direction provided by Kenya Vision 2030, Sessional Paper No. 9 of 2012, “The National Industrialisation Policy Framework for Kenya 2012-2030”, was published in November 2012 as a policy guideline for industrialisation. The policy sets its objectives as given below. Strengthening local production capacity to increase domestically manufactured goods by focusing on improving the sector’s productivity and value addition by 20%. Raising the share of Kenya’s products in the regional market from 7% to 15%. Developing niche products through which Kenya can achieve a global competitive advantage. Increasing the share of FDI in the industrial sector by 10%. Increasing by 25% the share of locally-produced industrial components, spare parts, and machine tools.

23 GOK (2008) First Medium-Term Programme 2008-2012 24 GOK (2013) Second Medium-Term Programme 2013-2017

2-43 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Developing at least two SEZs and five SME industrial parks. Establishing an Industrial Development Fund with a minimum of KES 10 billion for long-term financing. Increasing by 20% the share of manufacturing in total micro, small and medium enterprise (MSME) output. Increase the local content of locally-manufactured goods for export to at least 60%. Increasing the share of industries located outside major urban centres (Nairobi, Mombasa, Kisumu, Nakuru, and Eldoret) Source: MOIED (2012) Sessional Paper No. 9 of 2012 on the National Industrialisation Policy Framework for Kenya 2012-2030

The policy further reveals several important strategies such as employment creation, facilitation of a business-friendly environment for furtherance of private sector-led industrialisation, promotion of local and foreign direct investment, promotion of value addition, innovation, and institutional, legal and regulatory framework development.

SEZ is specifically mentioned in the context of achieving higher value addition. It envisages to fast track the establishment of SEZ.

The policy identified the priority industrial subsectors based on criteria including: i) comparative advantage, ii) competitive advantage, iii) technological innovation, iv) industrial linkages, and v) regional development. They were further categorised as short-, medium- and long-term development 25 . Table 2.9.1 below shows the priority industries as well as development time frame specified in the policy.

Table 2.9.1: Priority Industries in the National Industrialisation Policy and Development Time Frame Time Frame Category Subsector Short Medium Long Agro-processing ○ Labour intensive sectors Textile and clothing ○ ○ Leather and leather goods ○ ○ Iron and steel ○ ○ Machine tools and spares ○ ○ Medium to high technology sectors Agro machinery and farm implements ○ Pharmaceutical ○ Advanced manufacturing sectors Biotechnology and nanotechnology ○ Source: JICA Study Team based on MOIED (2012) Sessional Paper No. 9 of 2012 on the National Industrialisation Policy Framework for Kenya 2012-2030 (4) EAC Industrialisation Policy 2012 – 2032

The EAC Industrialisation Policy was released on 2011. The policy targets to enhance industrial production and productivity and to accelerate the structural transformation of EAC economies. The specific objectives are to progressively increase 1) the manufacturing industry’s contribution to the regional GDP, currently at an average of 9.7 percent, to an average of about 25 percent in 2032; 2) The rate of growth of the manufacturing sector,

25 MOIED (2012) Sessional Paper No. 9 of 2012 on the National Industrialization Policy Framework for Kenya 2012-2030

2-44 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report currently at an average of 4 percent to an annual average growth rate of 12 percent in 2032; 3) The contribution of manufactured exports to total exports, currently at an average of 32 percent1 to an average of about 52 percent in 2032; and 4) Manufacturing based employment currently at 456,000 to about 2.3 million in 2030. As a result, the collective regional GDP is expected to increase from USD 74.5 billion in 2011 to USD238.9 billion in 2032. The GDP er capita will reach USD 1,300 and the manufactured value added per capita increases to USD 258 in 2032.

(5) EAC Industrialisation Strategy 2012 – 2032

The EAC Industrialization Strategy is also announced in 2011. The objectives of the strategy encompasses issues, namely: a) diversification of manufacturing base and enhanced local value addition; b) strengthening national and regional institutional frameworks and capabilities for industrial policy design, implementation, and delivery; c) strengthening research and development (R&D), technology, and innovation capabilities; d) increasing contribution of intraregional manufacturing exports to total manufacturing imports into the region; and e) transforming MSMEs into viable and sustainable business entities.

It further specifies six strategic sectors, namely, i) iron ore and other mineral processing, ii) fertilisers and agrochemicals, iii) pharmaceuticals, iv) petrochemicals and gas processing, v) agro-processing, and vi) energy and biofuels.

It also lists the ten guiding principles for implementation, including the need of equitable industrialisation.

The strategy further raises policy interventions and actions, including establishment of special investment scheme to stimulate investments into the priority sector.

It also envisages pilot regional industrialisation programmes and projects, and programmes for fast tracking implementation of the strategy. The programmes and projects include development of corridors and spatial development projects. One project under the programme is to develop an industrial park along the corridors where an entity would provide various services for certified strategic industries located in the park on a fee basis26.

(5) Industrialisation Roadmap

The Ministry of Industrialization and Enterprise Development has prepared the country’s first ever comprehensive industrialization roadmap. The priorities are:  Grow critical sectors where we have scale such Tea, Flowers, Coffee and Horticulture  Leverage natural advantages to create competitive sectors that include: Textiles and cotton; Leather; Agro-processing; Beef; and Fishing

26 EAC (2011), East African Community Industrialisation Strategy 2012-2032 2-45 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report  Build local industry to support resource and infrastructure investments in areas such as Oil; Minerals; Infrastructure (e.g. steel); and Geothermal  Transform government industry including Pan Paper Mills; Sugar; Coffee; Coconut/ cashew; Livestock and Pyrethrum  Enhance non-industrial job creating sectors in ICT; Retail and wholesale trade; and Tourism  Improve the ease of doing business  Support sectors for growth: skills, infrastructure (Special Economic Zones, Free Trade Zones), and finance  Unlock the potential of SMEs  Develop a compelling FDI attraction plan

2.9.2 Trade Policy

(1) Regional Economic Integration and Customs Regime

As explained earlier, Kenya is a part of EAC and COMESA. The trade and investment related institutional frameworks in EAC and COMESA, which are generally incorporated into Kenya’s policy framework for implementation is in up-dating, the current are summarised below.

EAC and Customs Regime

The important sources, which influence Kenya’s trade and investment policy implementation are the Protocol on the Establishment of the East African Customs Union (hereinafter called as “the Protocol”) and the EAC Customs Management Act (EACCMA). The Protocol provides a framework and specifies actual conditions in customs-related policy tools in Kenya, including SEZ and EPZ. EACCMA, which was signed in 2004, designates the rules and procedures concerning customs and other relevant activities. The Protocol establishes the Common External Tariff (CET), which is to be applied to imported goods from outside of EAC with a three-band tariff (0%, 10%, and 25% for raw materials, semi-processed, and finished goods, respectively), with an exception of Sensitive Items (about 60 items with tariff ranging from 35% to 100%). In terms of internal movement within custom territory, import from other EAC member states to Kenya is free of duty and likewise Kenya’s goods toward those states are free of duty.

With the consideration of broader socio-economic development, the customs duty rates on specific products are zero rated or exempted, apart from those zero rated under the three-band tariff regime of CET. Such products include fertiliser, pharmaceuticals, agro-machinery, and industrial machinery27. Whereas duty-free arrangement may be required to other sectors, such as health and agriculture, in order to reduce the cost of procurement of necessary goods. The

27 Based on the review of EAC Common External Tariff 2007 Version

2-46 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report duty-free arrangement also limits the protection for industries in a small or an infant stage. Similar problems may also be observed in various industries with the set CET rates. With high dependency of imported materials and relatively high labour costs, the designated tariff bands may not provide enough room for domestic products for value addition in order to compete with cheap finished goods imported from abroad28. In order to overcome these problems, measures to ease the constraints of doing business within the field where Kenya and the Government of Kenya (GOK) have the control should be considered.

COMESA

The customs union under COMESA was agreed upon and launched in 2009, which in principle set the CET in a harmonised rate with EAC. Nonetheless, the Customs Union has not been operational yet, and waits to be launched full-fledged until June 201429.

(2) Important Preferential Tariff Treatments

Kenya enjoys preferential tariff treatments including the African Growth and Opportunity Act (AGOA) by the USA, and the Generalised System of Preference (GSP) with Japan, New Zealand, and European countries30. Kenya has not fully utilized preferential tariff treatment.

AGOA drove the growth of the garment sector in Kenya. On the other hand, the act will introduce the requirement of sourcing fabrics either from Sub-Saharan African countries or the USA after 2015. The current structure of production relies on imported raw materials from Asian third countries. AGOA has been extended for further 10 years.

Kenya has been in a disadvantaged position in terms of the tariff level for export to Europe, as compared with other EAC countries due to its income level categorised as “lower middle income country”, rather than as least developed country (LDC). In October 2014, EAC and the European Union (EU) concluded negotiation for the Economic Partnership Agreement (EPA). The new EPA mandates both parties to reduce the tariff and non-tariff barriers. While the EU will allow all EAC products duty-free, quota-free (DFQF) access to the EU market, EAC countries are required to increase the share of duty free imports to 80% over the next 15 years31.

(3) Kenya International Trade Policy

Kenya was following the Kenya National Trade Policy 2009, which included strategies and programmes for promotion on international trade. Currently, the Ministry of Foreign Affairs and International Trade of Kenya is drafting the new International Trade Policy. As of May

28 Based on the interview with industries in February 2014 29 COMESA (2014)Report of The Thirty Second Meeting of the Council of Ministers, Kinshasa, DRC, February 2014 30 KRA website 31 International Centre for Trade and Sustainable Development “EU and EAC Seal EPA Deal”, 20 October 2014, European Commission Directorate-General for Trade, “EU struck a comprehensive trade deal with the East African Community”(Press Release), 16 October 2014

2-47 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 2015, the draft includes strategies and programmes for promotion of international trade by enhancing participation in international trade negotiations, formulating effective trade remedy regime, and safeguarding sensitive sectors from full liberalization.

2.9.3 Current Policy Tools for Investment and Export Promotion

(1) Investment Policy

The current policy for investment promotion is still governed by the Investment Promotion Act (Cap.485) enacted in 2004, which was revised later to first reduce the minimum required amount of investment, and then to ease some of the requirements of the investment certificate as optional. As a result of streamlining the licensing by GOK together with the amendment of the Constitution to promote devolution, the investors can now start their business with a single business permit issued by the country government.

In order to bolster the investment for achieving Kenya Vision 2030, GOK, spearheaded by then the Office of the Prime Minister, developed the “Summary of Key Investment Opportunities in Kenya” in 2008, comprising various sectors and commodities to attract investors.

(2) Incentive Scheme and Arrangement

Major fiscal incentives for investment promotion are listed in Table 2.9.2.

Table 2.9.2: Fiscal Incentives for Investment Promotion Incentive Incentives Remarks Scheme EPZ Exemption of corporate income tax for the first ten years from Targeting export-oriented first sales, 25% for the ten years following the expiry of the investment, only 20% of exemption the products produced in Exemption of withholding tax dividends during the time of the zone can be exported the exemption of income tax into the domestic customs Exemption of value-added tax (VAT), excise duties, stamp area including Uganda duty and Tanzania with Exemption of import quotas payment of external duty Investment deduction for 20 years and VAT Wear and tear Capital deduction for machinery (12.5%~37.5%) Deduction made to the allowance corporate income tax Industrial Capital deduction for the following investments: building Hotel building allowance Other qualified building Investment Once only at the given percentage: allowance 150% of the capital expenditure for more than KES 200 million capital expenditure and qualified investment outside of Nairobi, Mombasa, and Kisumu 100% for other qualified investments Import duty set Import duty paid on capital goods other than passenger cars is Note some of the off against set off against income tax for an approved project industrial machinery is income tax The project cost should be no less than USD 70,000 zero-rated under CET Prior approval from the National Treasury (NT) is required Source: JICA Study Team based on the information of Income Tax Act (Cap470), PwC, “Doing business: Know your Taxes East Africa Tax Guide 2013/14”

2-48 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Measures for investment promotion and technical upgrading are readily available. It should also be noted that VAT and customs duty exemption or zero rating are also available for capital expenditure. Other preferential treatment upon the receipt of the investment certificate is provision of entry permits for expatriate managers, technical staff, and owners of the business for two years.

(3) Export Processing Zone (EPZ)

EPZ can be recognised as the most critical tool for promoting FDI and export amongst the currently available tools. Fiscal incentives as well as other special arrangements are provided under the EPZ scheme as listed in Table 2.9.3. The EPZ Act Cap 517 was established in 1990 and the Export Processing Zone Authority (EPZA) was subsequently established.

Targeting export promotion with generous incentives, there is a limit on the sale of goods produced within these zones in customs territories including other EAC member countries. Only up to 20% of annual production of a company can be sold within the customs territories with the approval from the competent authority and payment of import duties and levies and other charges. Commercial activities are not eligible for sales in the customs territory. The status of goods and services as well as their handling are in accordance with the EAC Protocol on the Establishment of the East African Customs Union and the Annex VII Export Processing Zones Regulations.

1) Performance to Date

Key data on the performance of EPZ are shown in Table 2.9.3.

Table 2.9.3: Key Performance Data of EPZ Item 2009 2010 2011 2012 2013 Gazetted Zones 41 42 45 47 50 Enterprise Operating 83 75 79 82 85 Employment in Total (persons) 30,623 31,502 32,464 35,929 40,433 Employment Growth Rate - 2.9 3.1 10.7 12.5 Employment per Enterprise 369.0 420.0 410.9 438.2 475.7 Export in Total (KES million) 23,948 28,998 39,067 39,962 44,427 Import in Total (KES million) 12,627 16,518 21,443 24,973 27,413 Local Purchase (KES million) 3,942 4,661 6,276 8,027 7,721 Ratio of Value of Import to Unit Export (%) 52.7 57.0 54.9 62.5 61.7 Ratio of Value of Local Purchase to Unit Export (%) 16.5 16.1 16.1 20.1 17.4 Invested Capital (Cumulative) 21,507 23,563 26,464 38,535 42,912 Source: JICA Study Team based on EPZA “Export Processing Zone Program Annual Performance Report, 2013”

While the total number of zones gazetted in recent years has been steadily increasing from 41 in 2009 to 50 in 2013, the number of licensed enterprises was 85 in 2013, or only two more than in 2009. As shown in the data, the number has been resumed from 75 in 2010 when the garment industry, the leading sector in EPZ, was severely hit by the global financial crisis in

2-49 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 2008. The ratios of the value of imported and locally sourced materials to their exported value have increased largely in 2012. It may be due to the increased price of various imported materials including petroleum products and textile fibres in 2011.

Out of the 85 companies operating in EPZ in 2013, 22 (25%) were for garment and 21 (24.7%) for agro-processing. The composition of industries within EPZ has been changing in response to the economic situation. The share of employees in the garment sector has declined from 83% in 2007 to 75% in 2012. Agro-processing showed a drastic increase from KES 1.6 billion in 2007 to KES 7.5 billion in 201332. Cumulative investment in 2013 is increased partially due to the capital intensive investment projects in the cement and pharmaceutical sectors33.

2) Geographical Distribution of EPZ

As shown in Table 2.9.4 below, Mombasa hosts a large share of EPZs as well as EPZ enterprises in Kenya. Mombasa also shows a large contribution in terms of export amount.

Table 2.9.4: EPZ Geographical Distribution and Performance per Location Share Local Exports Share in Total Sales Investment Imports Number No. of in No. Local Resource Location (KES Export (KES (KES (KES of Zones Firms Firm Jobs (no) (KES million) (%) million) million) million) (%) million) Nairobi 8 11 12.9 6,950.00 8,479.00 19 10,523.00 3,726.00 7,914.00 5,548.00 Athi River, Molongo, 5 47 55.3 16,040.0016,194.00 36 19,445.00 6,522.00 24,305.00 13,071.00 Ishinya Mombasa & 27 21 24.7 14,686.00 17,019.00 38 17,277.00 6,381.00 13,327.00 8,609.00 Kilifi Taita Taveta 1 ------Kiambu， Thika, 3 3 3.5 1,820.00 920 2 936 703 657 48 Muranga Elgeyo Marakwet, 2 2 2.4 305 1,471.00 3 1,768.00 1,670.00 1,546.00 121 Nandi Laikipia 1 1 1.2 160 344 1 344 274 255 16 Uasin Gishu 1 ------Meru 1 ------Bomet 1 ------Total 50 85 100 39,961.0044,427.00 100 50,293.00 19,276.00 48,004.00 27,413.00 Source: JICA Study Team based on the data of EPZA “Export Processing Zone Program Annual Performance Report, 2013” 3) Limitation and Lessons Learned from EPZ

Mismatch with local and global investment demand

Despite the generous incentives, it is noted that the current variety of industries remain limited to garment, which enjoys preferential access to US market under AGOA. Some of the

32 EPZA (2014) Export Processing Zone Program Annual Performance Report, 2013 and the data provided by EPZA 33 KNBS (2014) Economic Survey 2014

2-50 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report currently emerging FDI trends and the domestic industries with a targeting the EAC markets are not captured by EPZ due to the institutional limitation of importation into the customs territories including the EAC market.

Proper arrangement and services for EPZ companies

While EPZ in the Athi River hosts the largest number of investors in EPZs, the development of the Kipevu site has not yet started.

It should be noted that most of the EPZs are operating with only one company. Out of 33 zones listed in the EPZA report as “operational”, only nine hosts more than two enterprises. The nature of scattered and small-scale EPZs causes some issues on oversight and provision of public services in an efficient manner34.

The situation of small scattered EPZs is not favourable from the aspect of development of industrial agglomeration and business expansion by the development scale. Therefore, it is recommended to develop the industry by certain scale and concentration.

Other issues

According to interviews with enterprises, the problems lie in the limitation in hiring expatriate technical personnel. New technologies which do not exist in Kenya may require foreign management and technical staff. The current immigration scheme and relevant policy implementation limit the employment of foreign technical personnel35.

34 For example, according to the interview with enterprises, KRA officers have to handle enterprises in multiple locations which cause inefficiency of business operation. 35 Based on the interviews with industries in April 2014.

2-51 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

CHAPTER 3 THE LEGAL FRAMEWORK

3.1 EAC and National Level Approaches

3.1.1 Pre-Conditions for Analysis

1. The legal perspective and analysis adopted in this report is informed by the draft Special Economic Zone (SEZ) Policy of the East African Community (EAC) dated April 2014 as well as Kenya’s national Draft SEZ Bill of February 2015. It is noted that the relevant regulations have not been put into consideration due to potential changes that might be made as a result of ongoing discussions both at the EAC Council level and at the National Parliament. Accordingly, the final content of the legal and regulatory perspective in the report are subject to change and further modifications so as to be in line with those ongoing law making processes. 2. The current status of rules and regulations for SEZ at both the EAC level and national level in Kenya is summarised in Table 3.1.1 below:

Table 3.1.1: Rules and Regulations for SEZ National Level in EAC Level Kenya Policy guidelines SEZ Policy National SEZ Policy Laws, Treaty and Protocols Protocol on the Establishment of SEZ Bill, 2015 the EAC Customs Union (Protocol), EAC CMA 20041 Regulations Annex XXXV to the Protocol Draft SEZ Regulations EAC CMA Regulations 20102 Source: JICA Study Team

3. As of May 2015, it has been confirmed that the SEZ Policy is awaiting approval from the EAC Council while the SEZ bill is under consideration for possible enactment by the National Parliament of Kenya.

3.1.2 Historical Background of the EAC Customs Union

In 1917, the customs union started between the Kenya Colony and the Uganda Protectorate, which Tanganyika Territory joined in 1927. This customs union was transformed in 1948 into the East African High Commission, which provided a customs union, a common external tariff, currency and postage, and also dealt with common services in transport, communications, research, and education. After the independence of each partner state, these integrated activities were reconstituted and replaced in 1967 by EAC.

In November 1999, the Treaty for the Establishment of the East African Community was signed in Arusha by leaders of the three states and it entered into force in July 2000 following

3-1 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report the conclusion of the process of its ratification by all three partner states. Then, Rwanda and Burundi joined in 2007.

In terms of customs unification, EAC partner states signed the Protocol on the Establishment of the EAC Customs Union in March 2004, which commenced in January 2005 and gradually led to the complete unification toward 2010. For example, in Kenya, the region's largest exporter, the companies continued to pay duties on goods entering the other four EAC partner states on a declining scale until 2010. Today, common system of tariffs applies to goods imported from third-party countries. Therefore, if an EAC partner state was to introduce some customs-related incentives in its SEZ, such incentive scheme should be carefully designed not only by its national laws, but also in harmonisation with the EAC customs rules.

3.1.3 Harmonisation of EAC Partner States Incentives Schemes

The incentives mostly consist of those in relation to the customs in both EPZ and SEZ programs, but there are also those for non-customs such as tax holidays under the Corporate Income Tax Act, or preferential treatment for work permit for expatriates. Because of the establishment of EAC Customs Union, the customs related incentives should be approved at the EAC level while non-customs incentives should be approved at the national level. The non-customs incentives are not discussed here but later under the national law section.

SEZ Incentives

Custom Incentive - Tax holiday - Customs Controlled Area, etc. - Work permit - Repatriation, etc.

Source: JICA Study Team Figure 3.1.1: Decomposition of SEZ Incentives

In EAC partner states, the power of the customs regime has been transferred to the EAC level upon the establishment of the EAC Customs Union. It is not enough to prepare the SEZ scheme only through national laws, but harmonised treatment for EAC customs rules are also needed. However, the enabling legal framework to harmonize EAC member’s laws is not yet legislated. The EAC Council, which consists of ministers of each partner state analyses the current status of each partner state, as follows:

･ Kenya has successfully implemented its EPZ program since 1990 for the nation’s export promotion including expansion of exports to non-traditional markets such as the United States of America (USA). EPZ companies must export at least 80% of their annual productions in order to receive the incentives. With success, the Kenyan EPZ program certainly provided a good business model for the creation of the EPZ program at the EAC

3-2 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report level. However, there are some issues raised by EPZ enterprise on their access to the EAC market, which used to be counted as an export, but is now considered as a domestic transaction after the EAC customs consolidation. In addition, EPZs are limited to manufacturing industries, while there is increasing demand for a wider range of economic activities, such as tourism and free trade zones to facilitate sectors prioritised in the nation’s development plan. The Kenyan government is currently initiating the process to develop a broader and more comprehensive SEZ program, which has carefully been prepared and harmonised with the EAC Customs rules.

Currently, Tanzania and Rwanda have their own SEZ Law. However, all partner states are in the process of harmonising the SEZ schemes.

Table 3.1.2: SEZ Incentives in Tanzania and Rwanda Country Rwanda Law Law No 05/2011 of 21/3/2011 Creating Special Economic Zones under the Special Economic Zones Regulatory Authority of Rwanda (SEZAR) Regulations -Regulation No. 04/2012/SEZAR of 20/12/2012 on the Designation of Special Economic Zones in Rwanda. -Regulation No. 03/2012/SEZAR of 20/12/2012 on the Special Economic Zones Users -Regulation No. 01/2012/SEZAR of 20/12/2012 on the Development and Operation of Special Economic Zones. -Regulation No. 02/2012/SEZAR of 20/12/2012 on the Zones One-Stop-Shops. Incentives -15% flat corporate tax (Fiscal / -Duty free imports on proportion of production exported (outside of the customs union) for SEZs, Non-Fiscal) which are designated Free Trade Zones. -Existing non-discretionary performance based incentives under the Investment Code for registered investors such as investment allowances will apply. Country Tanzania Law Economic Zones Act 2006 Regulated by the Economic Processing Zone Authority (EPZA) Regulations Economic Zones Regulations 2012 Incentives Category A: Infrastructure Development (Fiscal/ - Exemption from taxes and duties on all capital goods related to SEZs, Non-Fiscal) - Exemption from Corporate Tax for 10 years, -Exemption from Withholding Tax on rent, dividends, and interests for 10 years, - Exemption from property tax for 10 years, - Exemption from VAT on utility charges, - Exemption from pre-shipments or destination inspection requirements. Category B: Investors Selling into the Customs Territory - Remission of Custom Duties, VAT and other taxes on raw materials and goods of capital nature related to production in the Zone, -Exemption from Withholding Tax on interest from a Foreign Sourced Loan, -Exemption from pre-shipments or destination inspection requirements, -On-site inspections of goods in the Zone, -Unconditional transferability of profits, dividends, loyalties, etc., -Provision of a visa, at the point of entry, to key personnel, -A One Stop Service Centre in the Zone. Category C: Investor’s Producing For The Export Market -Exemption from Corporate Tax for a period of 10 years, -Exemption from Withholding Tax on rent, dividends and interests, for 10 years, -Remission of Custom Duties, VAT and other taxes on raw materials and goods of capital nature related to production in EPZs, -Exemption from taxes and levies imposed by the Local Government Authorities on products produced in EPZs, -Exemption from VAT on utilities and wharfage charges, -Exemption from pre-shipments or destination inspection requirements, -Unconditional transferability of profits, dividends, loyalties, etc., -Lower port charges compared to other cargo rates (for EPZs), -Accessing the Export Credit Guarantee Scheme (for EPZs),

3-3 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report -On-site Customs Inspection within the Zones, -A One Stop Service Centre in the Zone. Source: Rwanda Law No 05/2011 of 21/3/2011, Tanzania: Economic Zones Act 2006

3.2 Establishment of EAC Level SEZ Framework

3.2.1 EAC Customs Management Act, Regulations and SEZ Policy Framework

First, the EAC Customs rules will be discussed in this section before entering into the specific legal framework of SEZ. The current EAC Customs rules are mentioned below: ･ Protocol on the Establishment of the EAC Customs Union (Protocol) ･ Annex XXXV to the Protocol of Part G “Special Economic Zone” ･ East Africa Community Customs Management Act 2004 (EAC CMA 2004) ･ EAC CMA Regulations 2010

The Protocol is enacted under the full procedure for general treaty amongst the sovereign countries, which is to be signed by the President of each partner state and then ratified by the Parliament of each partner state. In the Protocol, it is also stipulated to establish a customs law as well as Regulations under the law, which is often referred as a decree in other countries.

The EAC CMA 2004 is a customs related law at the EAC level, which is made under the Protocol and it allows the establishment of the EAC CMA Regulations 2010. Today, the unification of the EAC Customs Union has completed and all customs-related procedures in EAC partner states should be conducted in accordance with the EAC CMA and its regulations.

SEZ Policy (Draft) specifies the clauses to be considered or amended for the complete implementation of SEZ framework as below:

Table 3.2.1: Legal Framework for SEZ within Various EAC Laws Existing Legal Relevant Sections Summary of the Section Framework The Protocol on  Article 31 on Free Port Partner states may provide for the the Establishment  Article 32 on Other Arrangements establishment of Free Port, and other of the EAC special economic arrangements. Customs Union Annexes to the Protocol on the Uniformity amongst partner states in Establishment of the EAC Customs the implementation of Free Port Union. operations in ensuring transparency,  Annex VIII on Free Port accountability, and consistency with Regulations the provisions of the Protocol. EAC CMA 2004  Part XIV, Sections 167-170 on Free Customs treatment of goods within Port Free Port including the exemption of duty in accordance with the Protocol. EAC CMA Regulations 2010 Explains the control of goods within  Part XV, Sections 179-186 on Free a Free Port. Port Source: page 16 of the SEZ Policy, Draft as of April 2014

The operations of SEZ in EAC partner states shall be governed and facilitated by the EAC rules. The EAC Council shall develop the harmonised regulations and guidelines to implement the various provisions under the SEZ Policy including types of SEZ schemes, authorised SEZ

3-4 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report activities, incentives, and movement of goods to and from the SEZ. The partner states shall use harmonised national laws, regulations, and guidelines for determining and setting up various SEZ schemes.

However, establishment of Free Port is already provided for under the Annex VIII “Free Ports” regulation, and it can be developed and operated in Kenya.

3.2.2 EAC Regulations for Each SEZ Scheme

The SEZ Policy stipulates the various SEZ schemes, as follows: 1. Agricultural Zone 2. Educational Zone 3. Export Processing Zones (EPZs) 4. Financial Services Zone 5. Free Trade Zone 6. Free Zone 7. Free Port Zone 8. Industrial Park 9. Information Communication Technology Park (ICT Park) 10. Regional Headquarter Zone 11. Science and Technology Park 12. Tourist and Recreation Centre 13. Township SEZ (Underlined: front running schemes)

EAC Policy and Regulations will also provide a greater selection of eligible activities to include primary agricultural activities, services, commercial activities, manufacturing and processing, as well as non-core business activities.

Amongst the 13 SEZ schemes listed above, the intention is to prioritise the establishment of detailed Regulations for the five front running schemes of Free Trade Zone, Industrial Park, ICT Park, and Tourist and Recreation Centre by including the existing scheme of Free Port. It should be mentioned that there already exists Regulations only for Free Port at the Annex VIII of the Protocol as well as detailed clauses in EAC CMA 2004 and EAC CMA Regulations 2010. The Customs rules are clear for a Free Port scheme. Upon the approval of a SEZ Policy, the EAC Council will immediately work on the regulations, which are stipulated in Annex VIII to the Protocol for each SEZ scheme. The details of the five front running SEZ schemes are described below.

3-5 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 3.2.2: Summary of Five approved Schemes SEZ Scheme Existing Geographical Customs Business Regulations Location Controlled Area Activities Free Port Exists Close to a port Yes Trading, (in Annex VIII) (sea/airport etc.) storage, Free Trade Zone work in progress No restriction logistics, etc. Industrial Park Yes / No Manufacturing, assembling, processing. ICT Park Not decided ICT Tourist & Hotel, MICE, Recreation Centre etc. Source: JICA Study Team

･ Free Port is the only one SEZ scheme under Annex VIII of the Protocol. It is a customs controlled area where imported duty free goods are stored for the purpose of trading. It should be located in or adjacent to a port entry (lake port, river port, seaport, or airport), where it is allowed only for trading and its relevant business activities, but not for manufacturing and processing. ･ Free trade zone has the same notion as Free Port, except its location is not limited to a port entry. ･ Industrial park is designated for manufacturing, assembling and processing industries within SEZ, which may or may not be a customs controlled area. ･ ICT Park is designated for the Information, Communication and Technology industries. ･ Tourist and recreation Centre is an area for tourism and recreational related facilities including hotel accommodation, convention, meeting, exhibition, special medical area, recreational facilities, and long-term residences for retired persons. It may or may not be a SEZ customs controlled area.

On the other hand, the Regulations for industrial park should be distinguished whether it is within a customs controlled area or not. If it is within a customs controlled area, then it might be considered to have a similar scheme as the EPZ program without any restrictions for access to domestic market while import tariffs are payable for goods designated to the domestic market at the exit of Customs Controlled Area of the Industrial Park or SEZ. The Regulations for industrial park will be easily made in analogy to those in EPZ program because it has complete Regulations in Part F of the Protocol as well as in Annex VII. If the industrial park is not within a customs controlled area, then it should be regarded as ordinary factories anywhere else in the nation with respect to customs treatment. Therefore, it should be concluded that no special Regulations are needed for industrial park outside a customs controlled area because there are no customs related incentives.

3-6 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Industrial Park in SEZ

Customs Controlled Area Non-Customs Controlled Area (with SEZ customs incentives) (without SEZ customs incentives)

Source: JICA Study Team Figure 3.2.1: Regulations for Industrial Park

Examination of Customs Controlled Area

Customs duties on imported goods are exempted in “customs controlled area (CCA)”. However, customs duties in CCA are not always lower than those in Non-CCA.

Customs duties payables are compared between the cases of CCA and Non-CCA for different raw materials sources and different product markets as listed below. Figure 3.3.1 illustrates the comparison of customs duties. ・ Potential investors producing products for EAC market may prefer to invest in Non-CCA, because customs duties payable for the Non-CCA case are less than those for the CCA case (see Cases 1 and 2 of Figure 3.3.1). ・ Potential investors producing products for exporting to foreign countries (outside EAC market) from raw materials imported from foreign countries (outside EAC) may prefer to invest in CCA, because customs duties payable for CCA case are free of charge. This case is basically the same as Export Processing Scheme (see Case 3 of Figure 3.3.1). ・ Potential investors producing products for exporting to foreign countries (outside EAC market) from raw materials purchased from EAC need not worry whether the materials are CCA or Non-CCA because customs duties payable are free of charge for both CCA and Non-CCA cases (see Case 4 of Figure 3.3.1). Such potential investors may prefer to invest in Non-CCA to avoid rigmarole for custom control operations as much as possible.

In reality, some potential investors may produce products for both EAC and outside EAC markets from raw materials purchased from EAC and outside EAC sources; and they may alter the product market and raw material sources depending on the situation. They may select whether CCA or Non-CCA based on the above basic cases.

3-7 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Customs Control Area Non-Customs Control Area Case-1 CD (PR) CD (RM) CD (PM) CD (RM) RM: from Foreign C. CCA PR: to EAC Market N-CCA

Kenya Foreign Kenya Foreign Country Country

Customs duties CD (RM) = 0 (exempt) CD (RM) = VA (RM) x CET (RM) CD (PR) = VA (PR) x CET (PR) CD (PR) = 0 Total customs duties More Less

CD(PR) CCA > CD(RM) N-CCA, because VA(PR)>VA(RM) & CET(PR)>CET(RM) Case-2 CD (RM) CD (RM) RM: from EAC CCA CD (PR) PR: to EAC Market CD (PR) N-CCA

Kenya Kenya Foreign Foreign Country

Customs duties CD (RM) = 0 (exempt) CD (RM) = 0 CD (PR) = VA (PR) x CET (PR) CD (PR) = 0 Total customs duties More Less (0) Case-3 CD (RM) CD (RM) RM: from Foreign C. CCA CD (PR) CD (PM) PR: to Foreign Country N-CCA

Kenya Foreign Kenya Foreign Country Country

Customs duties CD (RM) = 0 (exempt) CD (RM) = VA (RM) x CET (RM) CD (PR) = 0 CD (PR) = 0 (note) Total customs duties Less (0) More Case-4 RM: from EAC CD (RM) CD (PR) CD (RM) CD (PM) CCA PR: to Foreign Country N-CCA

Kenya Foreign Kenya Foreign Country Country

Customs duties CD (RM) = 0 (note) CD (RM) = 0 CD (PR) = 0 CD (PR) = 0 (note) Total customs duties 00 Note: Export duties are exempted except for those on raw hides and skins, and scrap metal in Kenya. Abbreviation: N-CCA: Non-CCA; CD: Customs Duty; RM: Raw Material; PR: Product; VA: Value; CET: Customs External Tariff Source: JICA Study Team Figure 3.3.1: Comparison of Customs Duties at Cases of CCA and Non-CCA

It is recommended that the SEZ Bill should be amended to allow for the establishment of both CCA and Non-CCA for industrial parks in SEZ for the sake of satisfying manufacturers’ demands. Otherwise, such manufacturers do not want to invest in SEZ just like EPZ unless they operate manufacturing plants in the way of Case 3 of Figure 3.3.1.

3-8 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report This amendment seems to be accepted by the Draft EAC SEZ Policy which defines SEZ as being or not being CCA. The timing of amendment is recommended soon after the SEZ Bill is enacted because enactment of the original SEZ Bill shall not be delayed by this amendment.

As an example of the SEZ law allowing both CCA and Non-CCA, brief extractions are taken from Myanmar SEZ Law 2014, which is shown in Box 2.1 below. The Free Zone for Myanmar is comparable to CCA while the Promotion Zone is comparable to Non-CCA.

3.2.3 Challenges from the existing Legal Framework

This subsection will review some specific issues raised by business entities in Kenya and how the SEZ program provides the solution to them. The SEZ program in harmonisation with EAC Customs rules will certainly contribute to the economic growth of the region by increasing foreign direct investment.

(1) Maximum Storage Period of 30 Days for Re-Exporting Imported Goods

The inventory period of 30 days at maximum is not enough for establishing a trading hub because the products should be imported in large volumes to minimise shipping costs, but distribution to the national sales point should be bit by bit, in accordance with the domestic market demand. It is also preferable that the import tariff should be payable only once at the exit of the trading hub toward the national sales point. The 30 days rule for re-exporting the goods is stipulated in the EAC CMA 2004 as presented below.

Section 60 of EAC CMA 2004 (1) Goods entered for home consumption or sold in accordance with this Act shall be removed from the warehouse within fourteen (14) days after such entry or sale as the case may be. (2) Where goods are entered for export such goods shall be removed from the warehouse or bonded factory and exported within thirty (30) days or within such further period, not exceeding thirty (30) days, as the Commissioner may, in any particular case, allow.

It is interpreted that the 30 days rule does not apply in the Free Port because the Free Post is defined irrelevant to the Section 60 of EAC CMA 2004.

In Article 31(3) of the Protocol, which is the highest level of EAC Customs Union’s framework, it mentions total relief from payment of duty and any other import levies within the Free Port zone without stipulating the 30 days rule. In the same analogy, other arrangements of SEZ such as free trade zone should be reasonably considered to be treated in the same manner.

3-9 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Article 31(3) of the Protocol Goods entering into a Free Port shall be granted total relief from payment of duty and any other import levies except where the goods are removed from the Free Port for home use.

Also, Regulation 3 of Annex VIII of the Protocol defines that Free Port should be outside the customs territory while the 30 days rule is applicable only in the bonded area within the customs territory.

Regulation 3 of Annex VIII of the Protocol “Free Port zone” means a designated area placed at the disposal of the Free Port authority where goods introduced into the designated area are generally regarded, in so far as import duties are concerned, as being outside the customs territory;

Moreover, EAC CMA 2004 confirms in Section 167 that it shall be exempted from duty in the Free Port without mentioning the 30 days rule in Section 60.

Section 167 of EAC CMA 2004 Goods entering an export processing zone or a Free Port shall be exempted from duty in accordance with the Protocol.

Therefore, it should be interpreted that a complete customs exemption incentive has been already provided in the Free Port even under the current EAC Customs rules. It is reasonable to assume that same types of customs-related incentives should be provided for other arrangement of SEZ schemes such as free trade zone and industrial park if it is within the Customs Controlled Area.

3.3 Establishment of a National-Level SEZ Framework

SEZ legislation is at an advance stage of enactment.

3.3.1 Status of Enactment and Outline of SEZ Bill

(1) Outline of SEZ Bill

The SEZ Bill 2015 consists of six parts and 39 clauses as shown on Table 3.3.1.

Table 3.3.1: Arrangement of Clauses for SEZ Bill 2015 Clause Title of Clause Part I – Preliminary 1 Short title and commencement 2 Interpretation 3 Object and purpose of Act Part II – The Special Economic Zones 4 Declaration of the Special Economic Zones 5 Criteria for Designating Special Economic Zones 6 Goods to be Considered as Exported and Imported into Kenya 7 Goods and services within a Special Economic Zones 8 Removal of Goods from a Special Economic Zone

3-10 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Clause Title of Clause 9 Receipts and Payments of Special Economic Zones Enterprises Part III – The Special Economic Zones Authority 10 Establishment of the Authority 11 Functions of the Authority 12 Board of Directors 13 Conduct of Business and Affairs of the Board 14 Power of the Board 15 Remuneration of Directors 16 Chief Executive Officer 17 Staff of the Authority 18 Delegation by the Authority 19 Protection from Personal Liability 20 Common Seal Part IV- Financial Provisions 21 Establishment of the Fund 22 Financial Year 23 Annual Estimates 24 Accounts and Audits 25 Investment of Funds Part V –Regulatory Provisions 26 License to Operate in the Special Economic Zones 27 Application and Issue of License 28 Qualifications of a Special Economic Zones Developer & Operator 29 Special Economic Zone Enterprises 30 Register of Licenses Part VI – Rights and Obligations of the Special Economic Zone Entities 31 Authority to give notice to the Kenya Revenue Authority 32 Facilities within a Special Economic Zone 33 Rights of a Economic Zone Developer or Operator 34 Rights of Special Economic Zone Enterprise 35 Benefits Accruing to a Special Economic Zone Enterprise Part VII – Miscellaneous Provisions 36 Power of Cabinet Secretary 37 Dispute Resolution 38 Exemption from Stamp Duty 39 Regulations Schedule– Provisions as to the Conduct of Business and Affairs of the Board Memorandum of Objects and Reasons Source: SEZ Bill, 2015 dated on 17th February 2015

It should be noted that SEZ fiscal incentives shall be provided for in the existing National Laws, such as Income Tax law, VAT law and Excise law, for all SEZ transactions.

(2) Formulation of SEZ Regulations

The SEZ legislation stipulates the formulation of regulations for implementation of the SEZ Act in the following areas:  Criteria for the designation and gazetting of all Special Economic Zones;  Application process, criteria, conditions, terms and procedures for designation of Special Economic Zones and licensing of Special Economic Zone Developers, Operators and Enterprises;  The form of licences to be issued;  The general conditions of entry;  The requisite information;

3-11 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report  The rules pertaining to the establishment, functioning, operations, and procedures for the SEZ one-stop-shops;  The rules for the SEZ;  The rules of SEZ land use, development and building controls; and  Dispute resolution mechanism and exemption regimes.

3.3.2 The Kenya PPP Act

On 8th February 2013, the Public Private Partnership (PPP) Act (No. 15, 2013) came into force in order to effectively enhance various PPP activities in Kenya. The contents of Kenya’s PPP Act are summarised here below.  Preliminary (Part I, Sections 1-3)  Institutional Framework for PPP (Parts II-IV)  PPP Committee (Part II, Sections 4-10)  PPP Unit under the National Treasury (Part III, Sections 11-15)  PPP Node at Each Contracting Ministry (Part IV, Sections 16-17)  Procedure for Implementation of PPP Project (Parts V-IX)  Project Contract and PPP Contract, National Priority List of PPP Projects, Selection Procedure for the List, and Prequalification Procedures for Private Party (Part V, Sections 18-28)  Identification of Project and Selection of Private Party (Part VI, Sections 29-36)  Solicited Bidding (Part VII, Sections 37-60)  Non-compete Process for Privately-initiated Proposal (Part VIII, Section 61)  Project Agreement and its Contents (Part IX, Sections 62-66)  Petition from Private Party (Part IX, Section 67)  PPP Project Facilitation Fund and Information Disclosure (Part X, Sections 68-69)  Miscellaneous (Part XI, Sections 70-71)  Savings and Transitional (Part XII, Sections 72-78)

(1) Procedure for the Implementation of a PPP Project

Parts V through IX of the PPP Act describe the procedures for the implementation of a PPP project. It should be stressed that the competitive bidding process is highlighted in Section 29 (1) for the selection of a private party, while there is a limited exception of non-compete process of privately-initiated proposal in Section 61.

(2) Current Status of the SEZ at Dongo Kundu in Mombasa

The SEZ is listed as one of the PPP projects on the national priority list, which was initially announced at the end of 2013 with 47 projects and updated to 59 projects in September 2014. On the other hand, the nation’s long-term development plan or Kenya Vision 2030 prescribed

3-12 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report SEZ projects in three cities (Mombasa, Kisumu, and Lamu) as “Flagship Projects”. The SEZ is the only one of the flagship projects listed on the national priority list of PPP projects.

3-13 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

CHAPTER 4 INVESTMENT CLIMATE AND DEMAND

4.1 Investment Climate in Kenya and Mombasa

4.1.1 Cross-Country Comparison of Business Environment in Kenya

(1) Kenya’s Business Environment

Doing Business 2015 data shows the relative position of easiness of doing business. Out of 187 countries, Kenya ranked 136th in the overall evaluation. As the ranking only shows a relative position, progress or deterioration is not necessarily captured. In the last two years, starting business, getting electricity, and trading across borders are relatively weak, but the taxation payment scheme has become stronger (see Figure 4.1.1 below).

Ministry of Industrialization and Enterprise Development has set up a special business environment delivery unit to coordinate ease of doing business reform in the Government of Kenya.

Starting a Business Dealing with Resolving Construction Insolvency 150 Permits 100 Enforcing Getting Contracts 50 Electricity DB2015 0 DB2014 Trading Across Registering Borders Property

Paying Taxes Getting Credit

Protecting Minority Investors

Source: JICA Study Team based on the World Bank’s “Doing Business 2015” Figure 4.1.1: Kenya’s Rank in Doing Business 2014 and 2015

The business environment for investors, in general, and foreign investors are analysed by international surveys. According to the Investment Across Borders Index, the easiness of entering business in these sectors are benchmarked. While most of these sectors including tourism and manufacturing have no restriction for foreign investment though have limited ownership by foreigners, the telecommunication and transportation sectors (railway freight, port, and airport operation) have ceilings.1

1 World Bank, Investing Across Border 2010

4-1 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report In terms of industrial land issue, the index does not cover the availability but the easiness of access to land to foreign investors. Information on land information index is lower in Kenya than some of other selected economies shown in the Figure 4.1.2.

Singapore

South Africa

Availability of land Vietnam information* Access to land infomration*

Tanzania

Kenya

0 20406080100 Note*: 0=minimum 100=maximum Source: World Bank Investing Across Borders 2010 Figure 4.1.2: Barriers for Acquiring Land by Foreign Investors

As of the country destination for the FDI attraction to Africa which was surveyed and analysed by the Ernst & Young, Kenya was raked in 8th for the total FDI number since 2003, and ranked in 4th for the most new projects in 2014, as shown in the Table 4.1.1 and Table 4.1.2 respectively.

Table 4.1.1: Top 10 African FDI Destinations since 2003 country South Africa Egypt Morocco Nigeria Tunisia Algeria Angola Kenya Ghana Tanzania ranking 1 2 3 4 5 6 7 8 9 10 number of FDI 977 622 590 365 348 345 309 260 218 159 % to overall Africa 16.50% 10.50% 10.00% 6.20% 5.90% 5.80% 5.20% 4.40% 3.70% 2.70% Source: FDI Markets by Ernst & Young analysis

Table 4.1.2: Top 10 African FDI destinations 2011 and 2012 country South Africa Egypt Nigeria Kenya Morocco Ghana Tunisia Tanzania Angola Mozambique ranking 1 2 3 4 5 6 7 8 9 10 2011 159 52 50 58 95 47 40 35 37 26 2012 154 60 60 54 51 39 31 31 28 25 Sources: FDI Markets by Ernst & Young analysis (2) Cost of Doing Business in Kenya

The Table 4.1.3 summarizes some of the business operating costs in main African cities. Overall labour cost in Nairobi is maintained at low level compared to other cities. At the same time, the costs of industrial land lease as well as water usage are far cheaper than the rest.

4-2 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 4.1.3: Comparison of Cost of Doing Business (USD) Kenya Mozambique Nigeria South Africa (Nairobi) (Maputo) (Lagos) (Johannesburg) Worker*1 215 256 116 2,543 Monthly Engineer*1 480 676 2,710 5,413 Labour Minimum Wage 177 139 116 279 Wage*2 0.08 + fixed charge 0.15 + fixed 0.066 + fixed (USD 196), or 0.05 + fixed charge Electricity (per kwh)*3 charge charge (USD Demand Charge (USD 7.91) (USD 840) 223.59) (USD 2.53/kVA) Industrial Land Lease 0.04 8.00 5.00 3.60 (per month) 0.90 + fixed charge Water (per m3)*4 0.62 6.44 3.85 (USD 45) Note: *1: Lowest value of the range appears in the table. *2: Nairobi is the average of 15 job categories and multiple locations in the country, Johannesburg should be the price plus inflation adjustment.*3: In case of large-scale business. *4: In case of user category of the largest volume. Source: JETRO “Cost of Doing Business (2013)”

Government of Kenya has singled out energy as one of the key enablers of the Vision 2030. Electricity security therefore remains a matter of national priority and the Government is also alive to the fact that expensive energy hinders the competitiveness of our country by raising the cost of doing business. In this regard, energy accessibility and cost are key priorities in the Ministry. To address the above factors, the Government in September 2013 launched the road map for the 5000+ MW program for transforming Kenya. Through this initiative, in addition to scaling up power generation, focus will be on reducing the cost of power by over 40% in electricity for industrial and domestic customers, translating to the increased competitiveness for our economy.

4.2 Results of the Investment Demand Survey

4.2.1 Purpose and Methodology

Since the investment demand survey planned by the IFC was not conducted during study period of this Project, preliminary survey was conducted in order to grasp the investment demand specific to the planned special economic zones (SEZs) in Mombasa. To avoid duplication of the survey work between IFC in the future, and to find the possibility of bringing Japanese enterprises as one of the largest industrialized countries in the world, the survey was mainly conducted on Japanese firms.

Survey was conducted using the following two methods: ･ Questionnaire Survey to Companies The questionnaires comprised the following three items: Degree of Interest for Doing Business in Africa, Degree of Interest for Mombasa SEZ in Kenya, and Opinion or Suggestion for Mombasa SEZ (Free description). ･ Interview Survey to Companies, Business Groups, and Economic Organisations.

An overview of the survey is as follows:

4-3 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 4.1.4: Outline of the Investment Demand Survey Period Methods Description Resource conducted Questionnaire May Questionnaires sent: Japan: Database on the Companies’ survey 2014 Total: 3,801 Information by the Tokyo Shoko (Japan, India, UAE, UK, Saudi Arabia, Research, the List of Japanese Kenya, Uganda, South Sudan, Sudan) Enterprises (AfDB) Response rate Other countries: International Japan: 7.3% Other countries in total: 12.9% Companies’ Information File by Covered industries: Cross Index Corporation Major companies with certain size of business in manufacturing, mining, construction, transportation, and wholesale. Japan: Selected from the listed companies from the Tokyo Stock Exchange and some additional companies based on the size of sales, added from those in the List of Japanese Enterprises by the African Development Bank (AfDB) Interview May to Surveyed in total: survey June 2014 Japan: 46, India: 6, UAE: 3, UK: 4, South Africa: 3, Kenya: 4 Source: JICA Study Team

The survey sheet was attached as Appendix-1.

4.2.2 Results of the Questionnaire Survey

1) Strength of Mombasa SEZ

The points, which the companies recognised as attractiveness of Mombasa SEZ, are summarised in Figure 4.2.1 below (multiple answers were allowed). 0 1020304050

Close to International Port 24 21 34.1％ Close to International Airport 23 19 31.8％ Easy Access to Eastern African Countries 20 22 31.8％ Doing Business in English 20 18 28.8％ High & Expected Economic Growth 19 17 27.3％

A lot of Benefit as SEZ 21 12 25.0％

Rich Manpower 14 16 22.7％

Rich Natural Resources and Proceeding … 13 14 19.7％ Project Assisted by Japanese Government 14 11 18.9％ Famous Sightseeing City 9 7 12.1％

No interest 11 310.6％

Others 1.51 1％ (N=132)

Manufacturing Non‐Manufacturing Other Countries

4-4 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

0 1020304050607080

Close to International Port 16 53 45.7%

Doing Business in English 20 36 37.1%

Project assisted by Japanese Government 17 32 32.5%

A lot of Benefit as SEZ 17 30 31.1%

No Interest 13 25 25.2%

Easy Access to Eastern African Countries 12 19 20.5%

High & Expected Economic Growth 8 17 16.6%

Rich Natural Resources and Proceeding Projects 5 19 15.9%

Close to International Airport 5 11 10.6%

Rich Manpower 4 9 8.6%

Famous Sightseeing City 3 3 4.0%

Others 1 1 1.3% （N=151）

Manufacturing Non-manufacturing Japanese Companies Note: Multiple answers allowed Source: JICA Study Team Figure 4.2.1: Strength of Mombasa SEZ

All respondents valued proximity with international port as the most important factor for attractiveness of Mombasa. On the other hand, the most frequent answer of the companies in other countries, excluding East African and Japanese manufacturing companies was “doing business in English”. It can be regarded as a major strength of Kenyan business.

Whereas some companies listed factors related to easiness of transportation and logistics, the Japanese evaluated it less (20.5%). This gap may be generated by insufficient exposure of the Japanese companies to the possibility of business expansion in EAC originated in Mombasa. This may suggest the need of information provision.

Since Japanese business still minority in Kenya and many of them are not familiar with Kenyan business costumes, therefore many Japanese companies selected the existence of official development assistance (ODA) projects as an important factor. The commitment of the Japanese government will give the investors the confidence to invest in a project and the guarantee of business continuity.

2) Investor Expectation to Mombasa SEZ

The respondents’ views on conditions required for the success of Mombasa SEZ are shown in Figure 4.2.2 below (multiple answers were allowed).

4-5 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

0% 10% 20% 30% 40% 50% 60%

20.7% Improvement of Social Safety 47.1%

16.1% Development of Law and Regulations for SEZ 49.4%

16.1% Tax Incentives 43.7%

14.9% Tranparency of Investment Procedures 55.2%

14.9% Good Access to Neighbouring Countries 52.9%

5.7% Support for Employing Workers, Technicians, Engineers 42.5%

4.6% Establishment of Special Organization for Investment 43.7%

6.9% Others 5.7%

(N=87)

Most Important Important

Other Countries

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

47.1% Improvement of Social Safety 41.3%

18.3% Development of Laws and Regulations for SEZ 24.8%

15.4% Transparency of Investment Procedure 36.4%

8.7% Tax Incentives 28.1%

4.8% Good Access to Neighboring Countries 29.8%

3.8% Establishment of Special Organization for Investment 12.4%

1.9% Support for Employing Workers, Technicians, Engineers 28.1%

0.0% Others Most Important（N=104） 2.5% Important （N=121）

Most Important Important Japanese Companies Note: Select one for “Most Important”, multiple answers are allowed for “Important” Source: JICA Study Team Figure 4.2.2: Required Conditions for the Success of Mombasa SEZ

Institutional arrangements including SEZ laws and regulations, procedures, and tax incentives are also regarded as important factors. It may indicate the concern of companies on interaction with relevant Kenyan authorities which may affect the efficiency and smoothness of project implementation and operation.

3) Infrastructure Requirement

4-6 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

0% 10% 20% 30% 40% 50% 60% 70% 80% 29.1% Roads in Good Quality 59.5% 17.7% Land in Good Quality 53.2% 12.7% Reasonable Land Price 50.6% 8.9% Port in Good Quality 72.2% 8.9% Rental Factories, Rental Warehouse 50.6% 7.6% Stable and Sufficient Water Supply 58.2% 6.3% Good Telecommunication Climate 67.1% 3.8% Stable and Sufficient Electricity Supply 63.3% 1.3% Residence for Foreigners 48.1% 0.0% Exhibition Hall 41.8% 0.0% Availability of International Shools etc 32.9% 3.8% （） Others 2.5% N=79

Most Important Important

Other Countries

Japanese Companies Note: Select one for “Most Important”, multiple answers were allowed for “Important” Source: JICA Study Team Figure 4.2.3: Infrastructure Requirement

“Roads in good quality” was the most selected infrastructure requirement. Particularly for the Mombasa SEZ, this requirement is being dealt with the development of the Mombasa Southern By-pass which will have sufficient quality and quantity standard to connect SEZ to the urban centre, airport and port of Mombasa.

4-7 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Issues on the land such as “land in good quality”, “reasonable land price” and “rental factories and warehouses” for companies in other countries are important. Since the shape of current SEZ development land is not in flat condition and/or easy for construction, treatment such as land levelling and drainage control will be required to attract the investor to this place.

4.2.3 Results of the Interview Survey

The key issues brought up in the interviews are summarised as follows:

･ Manufacturing sector will move into the SEZ, in case if the production and operation costs can be reduced in the SEZ. It is necessary to clarify the linkage and the contribution of Mombasa SEZ to the concept of EAC by streamlining and simplifying the administrative procedures for businesses.

･ Security and political stability are major concerns for investors. The provision of sufficient information is necessary to avoid the conflict and misunderstanding.

･ Basic infrastructure such as road and electricity will be a critical factor for success of Mombasa SEZ currently, since no any infrastructure at Dongo Kundu area yet.

･ Availability and access to land and rental space with competitive prices are necessary.

･ Highly-skilled technical labour and business persons with adequate business ethics are required.

4.3 Other Literatures: Kenya Business Environment Survey Report 2014 (KPMG)

The findings and insights brought up by the survey are summarised as follows:

･ Rising costs and inflation, exploring new markets and manpower resource constraints and improving productivity are the main concerns of businesses in Kenya: 50% of respondents cited rising costs and inflation as their most urgent concern for the next 12 months. 19 % said exploring new markets and improving productivity was their key concern. Manpower resource constraints and improving productivity was the number three concern with 13% of respondents sounding the warning bells for lower productivity.

･ Policy-driven structural changes to Kenya’s economy are coming too slow; the government initiatives are yet to have an impact on business: 71% of respondents said the pace of restructuring was too slow. The government initiatives are yet to have an impact on business. Specifically, respondents indicated the government should place more emphasis on value creation activities such as country branding and innovation (4%).

4-8 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report ･ Tax and other monetary incentives and infrastructure are key investments, which will keep Kenya competitive: 27% of respondents said simplifying and making tax and other monetary incentives more relevant would give Kenya a competitive edge. More than a quarter of the respondents also felt investing in infrastructure in areas such as transport and energy would be the more probable choice.

･ The government should introduce initiatives aimed at export promotion, in order to help companies capture global market opportunities: 29% of respondents thought initiatives aimed at export promotions would open more doors for companies in terms of global market opportunities. 25% thought the government should pay more attention to facilitation of market access.

･ By enhancing productivity to increase job creation and household incomes, the effects of the increasing income gap will be mitigated 31% of the respondents felt that enhancing productivity, which in turn increases job creation and household incomes, would be the best form of mitigating the increasing income gap. 26% felt that provision of more affordable healthcare for the low income earners would be a better option.

･ The tax measures introduced in the previous budget have greatly increased the cost of production 74% of the respondents said the tax measures introduced in the recent budget have mostly increased their production cost. 14% felt the measures had no impact in their businesses.

4.4 Conclusion

The key challenges to attract FDI are consists of corruption, social safety from terrorism, laws and regulations, inefficiencies in public sector service delivery and poor infrastructure networks. While the Kenyan government has already taken measures to address some of these issues through increased recruitment of police officers and investment in police equipment and security installations, streamlining trade transactions, paying taxes, and introduction of single window system known as KenTrade to reduce government bureaucracy.

Ongoing construction of Standard Gauge Railway will connect Mombasa-Nairobi and also connect to Kampala (Uganda) in the second stage. Moreover, new berths in the Port of Mombasa and forthcoming mega projects relevant to Mombasa may, themselves, also create the market in addition to facilitating infrastructure. Several program planned and conducted by the development partners also will provide some confidence to investors especially to new foreign investors planning to enter the African market.

4-9 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report The market is soon expected to increase driven by high GDP growth and Kenyan Government had an economic agreement to expand the market to EAC with population around 140 million, COMESA with population around 400 million, TRIPARTITE FTA with population around 650 million, EPA-EU with population around 500 million, AGOA with the US.

4-10 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

CHAPTER 5 THE INDUSTRIAL DEVELOPMENT FRAMEWORK FOR SEZ DEVELOPMENT

5.1 Economic and Industrial Development Framework

5.1.1 Long-Term Projections of Global Economy Relevant to Kenya’s Economic Development Framework

One of the external factors which can be a key determinant of Kenya’s economic development is the global economy. Some forecasts indicate rather slower growth than in the past. The Organisation for Economic Co-operation and Development (OECD) forecasts the growth of the world economy to slow down from the previous decade. In the long run, its projection shows higher growth rate of non-OECD countries, with China having the highest growth rate up to around 2020, and then, India and Indonesia after around 20201. As seen in Figure 5.1.1., higher growth rate is observed in Non-OECD countries comparing with world and OECD countries’ growth rates. The highest growth rate is projected in the period of 2018 to 2013 in India. Another projection also shows gradual decline of the growth rate with aging and the gradual deceleration in emerging economy. While global growth is projected at 3.6% from 2010 to 2020, it will slow down to 2.4% from 2050 to 20602.

(%) 12

8 2001‐2007 6 2012‐2017 4 2018‐2031

2 2031‐2050

Source: Based on OECD (2012) “OECD Economic Outlook Volume 2012/1” Figure 5.1.1: Long-Term GDP Growth Rate Projection up to 2050

A forecast on Africa’s economic development up to 2050 also raised some key issues that require to be taken into account as listed herebelow3: ･ Multipolar global economy, ･ Competition for finite natural resources, and

1 OECD (2012) “OECD Economic Outlook Volume 2012/1” 2 OECD (2014) “Shifting Gear: Policy Challenges for the next 50 Years” OECD Economics Department Policy Notes, No.24 July 2014 3 JICA/Emerging Market Forum “Africa 2050 Realizing the Continent’s Full Potential”

5-1 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report ･ Aging world innovation and technological advances.

An OECD study also projects the significant increase of the share of global exports of non-OECD countries. The share of Africa in the global export is projected to show some increase by 2030 and it is almost equivalent to that of North America in 2060.4 The ongoing progress of multi-polarisation of the global economy may provide some opportunities to African economies. Various regions’ long-term global export share per industry is also projected as shown in Figure 5.1.2. In the long run, Africa’s share, especially for service and manufacturing, is expected to increase.

100%

90%

80%

70% Rest of the wrold 60% Emerging Asia 50% Rest of OECD 40% Euro Area+UK 30% USA+Canada 20% Africa

10%

0% 2010 2060 2010 2060 2010 2060 Manufacturing Service Agriculture Source: Based on the data in Johansson and Olaberria (2014) “Global Trade and Specialisation Patterns over the next 50 years” Figure 5.1.2: Share in World Exports by Industry

One projection maintains the need for African economies to exploit the opportunities provided by the changes in the global economy through extensive human resources development, enhanced competitiveness, and further integration of the intraregional economy. It projects a 4.6% average growth up to 2050, but it underlines the necessity of growth in productivity.5 In the short term, the agriculture and service sectors may remain the major sources of growth as forecasted for Sub-Saharan African countries in general. 6 In the long term, however, manufacturing and service may spearhead the economic growth of Africa.

5.1.2 Kenya’s Economic and Industrial Development Framework

(1) Kenya’s Population and Labour Force Projection

According to the United Nations (UN) projections in the medium fertility case, the annual population growth rate is expected to decline gradually from the current level of 2.7% in 2010 to 2.2% in 2030. The total population in this case is expected to increase to 66 million from 40 million in 2010.7 The number of those living in urban areas is also envisaged to increase from

4 Johansson and Olaberra (2014) “Global Trade and Specialisation Patterns over the next 50 years” 5 Emerging Market Forum 6 World Bank (2013), Africa’s Pulse: An analysis of issues shaping Africa’s economic future 7 United Nations, Department of Economic and Social Affairs, Population Division (2013). World Population Prospects: The 2012 Revision, DVD Edition.

5-2 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 24% in 2011 to 33% in 2030 which is estimated at 21,000 (see Figure 5.1.3 below).8 The economically active population will increase from 23,000 to approximately 40,000.

70,000

60,000 Annual Population at 50,000 Mid‐Year in Total ('000) 40,000 Annual Urban 30,000 Population at Mid‐Year ('000) 20,000 Economically active population (Medium 10,000 Fertility) 0

Source: JICA Study Team based on the data of United Nations Department of Economic and Social Affairs (UN-DESA) Figure 5.1.3: Population Growth and Urbanisation Projection up to 2030

The economically active population in both urban and rural areas are calculated and shown in Table 5.1.2. The labour force is also projected using the employment to population ratio separately calculated for urban and rural areas. Currently, the employment to population ratio in urban areas is significantly low. In the future, in order to cope with urbanisation, quality employment should be created in the urban sectors such as manufacturing and services.

Table 5.1.1: Employment to Population Ratio Urban Area 52.8 Rural Area 86.9 Source: GOK (2009) Census of Population and Housing

Table 5.1.2: Urban and Rural Population and Labour Force Projection in 2018, 2025 and 2030 2011 2018 2025 2030 Annual Population at Mid-Year in Total ('000)*1 42,028 50,409 59,386 66,306 Annual Urban Population at Mid-Year ('000)*2 10,073 13,581 17,973 21,767 Economically active population (Medium Fertility) (a)*1 23,070 28,291 34,699 39,678 Ratio of Population at Mid-Year Residing in Urban Areas (b)*2 24% 27% 30% 33% Economically active population in Urban Area (a)×(b)=(c) 5,529 7,622 10,502 13,026 Economically active population in Rural Area (a)×(100-(b))=(d) 17,541 20,669 24,197 26,653 Labour force in Urban Area*3 - 4,024 5,545 6,877 Labour force in Rural Area*3 - 17,961 21,027 23,161 Labour force in Total 16,148 21,986 26,572 30,039 Source: *1 UN-DESA (2013), *2 UN-DESA (2014), *3 calculated by JICA Study Team

(2) Kenya’s Economic Development Framework and Growth Forecast

8 United Nations, Department of Economic and Social Affairs, Population Division (2014). World Urbanization Prospects: The 2014 Revision, CD-ROM Edition.

5-3 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report The Kenya Vision 2030 aims for Kenya to become a middle-income country by 2030. Its Second Medium Term Plan sets the gross domestic product (GDP) growth target up to 2017 to gradually accelerate to reach 10% per annum and to maintain the rate onwards. The GDP and sectoral growth target in the plan is shown in Table 5.1.3 below.

Table 5.1.3: Growth Target of Kenya Vision 2030 Second Mid-Term Plan 2013-2017 2012 2013 2014 2015 2016 2017 GDP 4.6% 6.1% 7.2% 8.7% 9.1% 10.1% Agriculture 4.2% 5.1% 6.5% 6.8% 7.1% 7.2% Industry 4.6% 6.0% 7.6% 8.6% 10.1% 10.2% Service 5.5% 6.5% 7.3% 9.4% 10.0% 10.0% Source: GOK (2013) Kenya Vision 2030 the Second Medium -Term Plan

On the other hand, Kenya rebased its GDP in 2014 and it turned out that Kenya’s GDP is 25% more than the old estimate.

Regarding the historic performance of Kenya’s economic growth and the projection of global economy, lower growth scenarios are also considered. The Article IV consultation of the International Monetary Fund (IMF) in 2014 produced its report before the results of the rebased GDP. Therefore, it estimated the degree of change from the old calculation to the new calculation. Though the nominal GDP after rebasing is slightly larger than the IMF estimation, the deviation between the new calculation and IMF estimation is smaller than that between the old and new calculations. According to the Staff Report of 2014 Article IV consultation, the growth rate of GDP in the FY2014/15 is projected at 5.8%. In the FY2018/19, the growth rate is further projected to reach 6.6%. The Staff Report on the debt sustainability further set the long-term baseline based on the historical performance and some prospect of economic development. It projects a rather weak growth rate in the short-term and a stronger growth rate in the long-term. The baseline growth rate between 2014 and 2018 is set at 5.8% and from 2019 to 2033 at 7%.9

Kenya’s economic growth can further be predicted so that it can be linked deeper with regional economic integration. The IMF also sets the growth assumption for the Article IV consultation for Uganda and Tanzania: Tanzania’s assumed average GDP growth rate is 7.2% for the period of 2011 to 2016 and 7.5% between 2017 and 2031. Uganda’s average GDP growth rate is 6.5% for the period between 2013 and 2018 and 7% for 2019 to 2033 period.10 The projection for Kenya does not largely deviate from these projections.

The projected growth rates of Africa as a whole as well as the global economy in the long term are rather moderate than Kenya Vision 2030’s target. In order to adjust the projection to

9 IMF (2014) Staff Report for the 2014 Article IV Consultation 10 IMF (2011) Staff Report for the 2011 Article IV Consultation and Second Review under the Policy Support Instrument, IMF (2013) Staff Report for the 2013 Article IV Consultation, Sixth Review under the Policy are Support Instrument, Request for a Three-Year Policy Support Instrument and Cancellation of Current Policy Support Instrument.,

5-4 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report moderate growth cases, the following four case including the case following the planned growth rate of Kenya Vision 2030 are, therefore, considered: ･ The Kenya Vision 2030: 10% annual growth after 2018; ･ Scenario 1: 1% lower average growth rate of the IMF assumption, i.e., 6% in the period from 2015 up to 2030; ･ Scenario 2: The IMF assumption for Debt Sustainability: Around 7% growth in the period from 2015 up to 2030; and ･ Scenario 3: 1% higher average growth rate of the IMF assumption, i.e., 8% in the period from 2015 up to 2030.

The projected volume of GDP under each scenario in 2018, 2025, and 2030 is shown in Table 5.1.4 below (The figure of 2014 is actual figure).

Table 5.1.4: GDP and Per Capita GDP Projection for 2018, 2025, and 2030 Average Per capita GDP GDP (2009 Constant KES million) Growth (2009 Constant KES) Rate 2014 2018 2025 2030 2014 2018 2025 2030 Kenya Vision 2030 10% 3,833,876 5,506,458 10,730,530 17,281,625 84,176 101,788 180,692 260,634 Scenario 1 6% 3,833,876 4,840,180 7,277,,841 9,739,393 84,176 92,848 122,552 146,885 Scenario 2 7% 3,833,876 5,025,429 8,069,741 11,318,230 84,176 93,983 135,886 170,697 Scenario 3 8% 3,833,876 5,215,946 8,939,215 13,134,639 84,176 103,372 150,528 198,091 Source: Based on information on the national account in KNBS (2015) Economic Survey 2015, calculated by JICA Study Team. Per capita GDP was calculated using the medium fertility case of the UN-DESA population projection.

The GDP per capita in 2013 of middle-income countries is shown in Table 5.1.5. In 2013, the per capita GDP of Vietnam, a lower middle-income country, is 1.5 times larger than that of Kenya. The GDP per capita of other low income countries is more than twice the level of Kenya11.

Table 5.1.5: OECD-DAC ODA Recipient Category and Per Capita GDP Comparing with Kenya GDP per capita Relative volume if DAC Category Country (2014, Current USD) Kenya=1 Low Income* Kenya 1,337.9 1.0 Vietnam 2052.3 1.5 Lower Sri Lanka 3,631.0 2.7 middle-income Philippines 2,843.1 2.1 Egypt 3,436.3 2.6 Upper Thailand 5,560.7 4.2 middle-income South Africa 6,477.9 4.8 Note*: Kenya was categorised as a low-income country based on the GNI level in 2013 before rebasing. Source: JICA Study Team based on WDI.

The GDP per capita of Kenya of Kenya Vision 2030 target scenarios 1, 2 and 3 reaches 150% of the 2014 level in 2021, 2026, 2024, and 2022 respectively. The time when the per capita

11 According to the categorization of OECD-DAC, a lower middle-income country has per capita GNI of more than $1,046 and lower than $4,125 in 2013, and an upper middle-income country has more than $4,126 and lower than $12,745. Before the rebased GDP, Kenya, as reported in 2013, was categorized as a low income country with per capita GNI of US$930 in 2013. (DAC List of ODA Recipients Effective for reporting on 2012 and 2013 flows, http://www.oecd.org/dac/stats/49483614.pdf),

5-5 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report GDP will be doubled is projected to be 2025 for the case of Kenya Vision 2030, and 2030 and 2028 in the scenarios 2and 3, respectively. However, with 6% growth rate (scenario 1), GDP cannot be doubled by 2013.

(3) Kenya’s Position in the Global Supply Chain

As seen in the previous section, Africa is expected to play larger roles in the manufacturing and service sectors in the global economy. Currently, Kenya’s manufacturing sector does not exhibit remarkable growth and performance as mentioned earlier. The structure of the economy has rather been stagnant with high dependency on the agricultural sector for a long time. On the contrary, Kenya has experienced relatively high growth of the service industries in the last decade.

Based on the overview of Kenya’s industrial sector and Mombasa’s trade and industrial locations, the current structure of trade and industry may be understood as depicted in Figure 5.1.4 below.

National Market

Raw Material Resource Based Raw Material Products Manufactured Processing Processing Products Manufactured Good (Export Processing) Wholesale & Raw EAC & Retail Materials Warehousing COMESA Raw Materials Market Logistics Logistics

Finished Products Finished Nairobi Mombasa Products

Outside of Regional Market

Source: JICA Study Team Figure 5.1.4: Flow of Goods and Industrial Activities in Mombasa and Nairobi

A large portion of export to outside the region consists of resource-based commodities. Locally manufactured goods are consumed locally or regionally. At the same time, a wide range of the commodities are also imported largely as finished goods, and partially as semi-finished goods or as raw materials to be processed locally.

Regarding the global value chain and the flow of goods in Kenya as depicted in the figure above, Kenya is in a position to tap the demands arising from both economies, namely, the regional economy and the economy outside the region through bi-directional trade.

5-6 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report As shown in Chapter 1, the growing regional economy and expanding demands can provide markets for various commodities and services. Kenya’s manufactured goods, especially processed food, consumer products and construction materials, have already expanded their market in the region. Moreover, infrastructure as well as logistics services have been serving those products imported as complete products from outside into the region.

(4) Manufacturing Sector Projections

Over time, the economic development of Kenya is expected to be dominated by the industrial and service sectors. While the GDP share of the service sector has already reached a high level, the share of the industry, especially the manufacturing sector, is expected to increase over time in order to realise extensive economic growth.

The degree of the manufacturing sector growth is projected in order to further estimate the potential demand for industrial land. The service industries can be continuously dominant in the economy as more technological improvements and innovations are expected to increase the productivity of the sector.

The share of manufacturing shall reach 20% of total GDP in the year when the income will be doubled. This is based on the level of GDP per capita and manufacturing, value added. As shown in Table 5.1.5 below, Asian industries which are rising GDP rapidly, led by manufacturing and service sector development, maintain high level of the share of the manufacturing sector to GDP. The ratio is relatively low for Egypt and South Africa.

(%) 35 30 33 25 20 21 15 18 17 16 10 11 12 5 0 Kenya Vietnam Philippines Sri Lanka Egypt Thailnad South Africa

Source: JICA Study Team based on WDI. Figure 5.1.5: Composition of Industries of Asian and African Counterparts (2014)

The share of manufacturing, value added in the GDP is projected in Figure 5.1.6. The average growth rate during the period up to 2018, 2025, and 2030 are also projected in Table 5.1.6. The growth rates required to be achieved are high compared with the historic performance of

5-7 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report the sector especially in the early stages. It shows the necessity of drastic structural change from the current economic structure.

30.00% Phillipines in 2014 (21%) 25.00% Vietnam in 20.00% 2014 (17%)

15.00%

Kenya Vision 2030 10.00% Scenario 1 5.00% Scenario 2 Scenario 3 0.00%

Source: JICA Study Team Figure 5.1.6: Projection of the Share of Manufacturing, Value Added in GDP Based on the Hypothesis

Table 5.1.6: Projection of the Compounded Average Growth Rate of the Manufacturing Sector up to 2030 2013-2018 2019-2025 2026-2030 Kenya Vision 2030 15% 16% 14% Scenario 1 9% 10% 9% Scenario 2 10% 11% 10% Scenario 3 12% 13% 12% Source: JICA Study Team 5.1.3 Trial Projection of Labour and Land: The Manufacturing Sector’s Demand Forecast for Industrial Park

(1) Projection of the Volume of Employment

A preliminary estimate of necessary industrial land to accommodate the projected manufacturing growth is attempted in the following section. The estimate uses the economic development framework and projection in the previous section.

First, the number of labour force required for the projected manufacturing growth is estimated using the elasticity of employment to GDP. Elasticity is the rate of change in employment per given unit of change in GDP. The elasticity of the growth of private sector wage employment in the manufacturing sector to the growth of the value of manufacturing, value added in the past is calculated for the periods of 1994 to 1997, 2004 to 2007, and 2010 to 2013, as summarised in Table 5.1.7. The elasticity of 2010 to 2013 was based on the revised GDP, whereas the earlier two periods are computed with old GDP calculations due to the absence of data.

5-8 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 5.1.7: The Elasticity of Private Wage Employment of the Manufacturing Sector Period 1994-1997 2004-2007 2010-2013 Elasticity 1.12 0.58 0.57 Source: JICA Study Team based on the data of WDI and KNBS Economic Survey in various years, KNBS Information on the Revised National Accounts

Using the historic elasticity of 2010 to 2013, the employment growth figure is calculated for each scenario up to 2030. Despite the possible deviation and fluctuation of elasticity over time, the analysis was done as a trial in order to avoid involvement in further uncertainty caused by various influential factors. For example, the high wage relative to the productivity of Kenya may have affected the investment behaviour and capital intensity of the manufacturing sector. External factors such as the situation of the global economy and trade regime can also affect the predominant industries employing wage labours.

The average growth rates of private wage employment in the three periods are shown in Table 5.1.8 below.

Table 5.1.8: Average Growth Rate of Wage Employment 2014-2018 2019-2025 2026-2030 Kenya Vision 2030 8.2% 8.9% 8.1% Scenario 1 5.0% 5.4% 5.1% Scenario 2 5.8% 6.3% 5.8% Scenario 3 6.7% 7.2% 6.6% Source: JICA Study Team

The indicative volume of private wage employment required for the projected manufacturing sector growth is calculated using the abovementioned growth rates (see Table 5.1.9 below).

Table 5.1.9: Projection of the Private Wage Employment (‘000) 2013 2018 2025 2030 Kenya Vision 2030 279 417 761 1,127 Scenario 1 279 358 518 664 Scenario 2 279 372 570 758 Scenario 3 279 385 623 857 Source: JICA Study Team based on the previous projections and the private sector wage employment of 2012 in the Economic Survey 2014 (2) Area Width of the Industrial Land Necessary for Manufacturing Growth

Using the data of a unit area per worker, the area width of industrial sites can be computed. Throughout the period up to 2030, the estimated number of employees calculated by the previous process will be utilised for estimation. The area width required per worker may also vary across industries and countries. Table 5.1.10 below shows the unit area per worker of various industries in Japan in 2005.

Table 5.1.10: Workers per Unit Area for Various Industries Workers per 0.1 ha Food Processing 6.3 Beverage 2.2

5-9 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Workers per 0.1 ha Garment 11.7 Chemical 1.9 Oil and Petroleum Products 0.3 Plastics 4.7 Rubber 5.2 Metal Fabrication 4.1 General Machinery 5.1 Electrical Machinery and Appliances 8 Information and Communication 10.2 Transportation Machinery 4.5 Source: Japan Industrial Location Centre (2005) Kogyo Gentanni Chosa Hokokusho (Report on Unit Input Volume of Industry)

In order to adjust the difference of the composition of the industries, the weighted average of the worker per unit area is calculated based on the current manufacturing sector’s composition in Kenya. The composition is shown in Table 5.1.11. The calculated weighted average workers per 0.1 ha is 4.907 persons, i.e., 49.071 persons per ha.

Table 5.1.11: Composition of the Manufacturing, Value Added Manufacturing, value added (million KES) Share Food Processing 64,348 25.1% Beverage 24,419 9.5% Textile 9,807 3.8% Wearing Apparel 7,629 3.0% Coke and refined petrol products 12138 7.8% Chemicals and Chemical Products 15,657 6.1% Rubber and plastics products 11,195 4.4% Non-metallic mineral 11,563 4.5% Basic metals 14,071 5.5% Fabricated Metals 15,449 6.0% Others 240,949 56.4% Total 427,224 100.0% Source: KNBS (2013) CIP

Based on the volume of employment for the private sector wage workers and the weighted average number of workers per unit area, the total area width necessary to accommodate the estimated number of workers is computed. The sum of the area widths required from 2014 up to 2018, 2025, and 2030 are estimated, as shown in Table 5.1.12 below.

Table 5.1.12: Necessary Land Area to Accommodate the Projected Manufacturing Growth Sum of Area Width from 2014 (ha) Scenario Up to 2018 Up to 2025 Up to 2030 Kenya Vision 2030 2,805 9,822 17,271 Scenario 1 1,601 4,864 7,831 Scenario 2 1,883 5,929 9,750 Scenario 3 2,143 7,003 11,778 Source: JICA Study Team

The geographical distribution of the land to be developed is further estimated. The estimated sum of area width in the previous section is distributed according to the ratio based on the share of the number of manufacturing employees taken from the Census of Industrial Production, as shown in Table 5.1.13 below.

5-10 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 5.1.13: Distribution of Manufacturing Employees in Major Cities and Share Area City Persons Share Share of the Area Nairobi 158,705 49% Kiambu 11,329 3% Nairobi and surrounding areas 61% Thika 15,402 5% Machakos 12,041 4% Kilifi 7,576 2% Coast 8% Mombasa 19,995 6% Nakuru 19,508 6% Other areas 31% Other areas 80,258 25% Total 324,841 100% Source: JICA Study Team based on the data of KNBS (2013) CIP

The results of the estimation are shown in Table 5.1.14 below.

Table 5.1.14: Distribution of Necessary Land to Accommodate the Projected Manufacturing Growth Scenario Areas Up to 2018 (ha) Up to 2025 (ha) Up to 2030 (ha) Nairobi and the surroundings 1,705 5,971 10,499 Kenya Mombasa and Coast 238 834 1,466 Vision Other areas 862 3,017 5,306 2030 Total 2,805 9,822 17,271 Nairobi and the surroundings 973 2,957 4,761 Scenario Mombasa and Coast 136 413 665 1 Other areas 492 1,494 2,406 Total 1,601 4,864 7,831 Nairobi and the surroundings 1,148 3,605 5,927 Scenario Mombasa and Coast 160 503 828 2 Other areas 580 1,822 2,995 Total 1,888 5,929 9,750 Nairobi and the surroundings 1,303 4,257 7,160 Scenario Mombasa and Coast 182 594 1,000 3 Other areas 658 2,151 3,618 Total 2,143 7,003 11,778 Source: JICA Study Team

The available projection of the long-term population growth of major cities shows that the population is expected to concentrate more in Nairobi with a higher share in the total national population, whereas Mombasa is expected to gain a slight increase of the share (see Table 5.1.15 below).

Table 5.1.15: Population Projection of Nairobi and Mombasa in 2020 and 2025 2010 2020 2025 Population ('000) 40,909 52,906 66,306 Mombasa 940 1,411 1,775 Share in National Population 2.3% 2.7% 2.7% Nairobi 3,237 4,939 6,143 Share in National Population 7.9% 9.3% 9.3% Source: JICA Study Team based on UN-DESA population projection and UN-HABITAT (2014) State of African Cities 2014 for the projection of cities

5.2 Potential Industries for Mombasa SEZ

5.2.1 Methodology

5-11 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report This section will identify the industries which have proven their adequacy and rationale from the policy context as well as exhibit potential for development in Mombasa and in the planned special economic zones (SEZs).

While it is assumed that investment promotion, especially foreign direct investment (FDI) promotion, is expected to contribute to achieving industrial development objectives, it is also important to identify the critical position of Mombasa in the important industries in order for the industries located in Mombasa to fulfil the roles of value addition, product diversification, and domestic and regional industrialisation.

Based on the overall economic development projections in the previous section, subsequent analysis will be undertaken to develop the priority list with phasing and to identify the investment obstacles as explained in the following section. Therefore, selection will be done by combining the critical factors such as the national policy framework and current status of Kenya’s industry, the characteristics of Mombasa as an industrial site and investors’ demand as reviewed in the previous sections. Based on this information, the selection criteria were set to select the potential industries. The sequence is shown in Figure 5.2.1.

Review the background and the framework Forecast Kenya’s future position Global trend and forecast and its industry

Review direction and vision of industrial development in Kenya

National economic and industrial development policies and plans

Develop the long list of potential industries for SEZ promotion

Challenges and Constrains Short-listing and phasing

Structure of Industry and Criteria Short List with Phasing Mombasa’s position constraints

Identify Obstacles

Source: JICA Study Team Figure 5.2.1: Flow of Selecting Potential Industries

5.2.2 Establishing the List of Potential Industries Based on the National Policy Context

(1) National Policy Context

The industries to be located in the SEZ are expected to fulfil the roles to achieve the policy objectives of SEZ development, namely: i) investment promotion; ii) expansion and diversification of production of goods and services for domestic and export markets; iii) promotion of value addition; iv) promotion of local entrepreneurship through small and

5-12 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report medium enterprises (SMEs); v) enhanced technology development and innovation; and vi) promotion of rural and regional industrialisation by exploiting comparative advantages.12

As reviewed in Chapter 2, relevant policies in terms of industrial development and trade and investment promotion provide the direction of the overall policy objectives as well as the specific objectives of SEZ. Those industries are first selected in order to align with the national policy context. Although these policies focus on the different process or scope of economic activities, the targets may be broadly organised as shown in Table 5.2.1.

Table 5.2.1: Industrial Development, Investment and Trade Promotion Policy Target Kenya Vision 2030 Industrial Development Investment Policy Trade Policy Mid-Term Master Plan National Summary of Key Programme 2013- Surve y for Ke nyan Target and Priority industries Industrialization Investment Export 2017 Industrial Policy Framework Opportunities in Promotion Industries to be Development (2012) Kenya (2008) promoted in SEZs (MAPSKID)(2008) Agro-processing (Fruits and vegetable, coffee, ○ ○○○○ dairy, meat products, oil crops etc) Fish and marine resource processing ○ ○○ ○ Textile and clothing ○ ○○ ○ Leather and Leather goods ○ ○○ ○ Fertilizer, other chemical Chemicals ○○ products Pharmaceuticals and medical products ○ ○ Construction Cement, glass sheet etc ○ materials Iron and Steel ○ ○ ○ Metal Can, structured metals etc ○ fabrication Machine tools and spares ○ Agro machine ry and farm ery ○○

Machin implements Electrical appliances and equipment (electrical ○ equipment, personal computer, white goods) Electricity generation equipment (solar and wind equipment generator) and equipment for ○ ○ transmission (e.g.,

Electrical appliances & appliances Electrical transformer, switchboard) Biotechnology and nanotechnology ○ Horticulture Cut flower, fresh produce ○○ Powe r ge ne ration ○ Energy Renewable energy ○○ Oils and other Mineral extraction ○○ minerals Mineral beneficiation ○ BPO ○○ Data processing and management for public ○ ICT administration Software and hardware ○○ development Conferrence facilities, Tourism ○○ business tourism Logistics and Car trading hub ○ trading Note: the industrial sectors with screen are selected as the priority sectors as identified by more than two policies as a priority sector. Source: JICA Study Team

12 GOK, Kenya Vision 2030 Mid-term Plan 2013-2017 5-13 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (2) Emerging Industries for Analysis

In addition to the list of products and those selected based on policy analysis, a few industries such as consumer goods, petroleum products, and motor vehicles are analysed considering the size of the trade. Infrastructure development services are also included considering the region’s infrastructure development need.

5.2.3 Challenges to Increased Investment in Mombasa

Based on the overview of Kenya’s socioeconomic situation business and investment environments, the challenges and impediments for investment in general became clear. In order to identify the factors which may affect the strength of Mombasa as the location for certain industries, some key issues of business environment are reviewed.

The observed challenges for the investors are summarized in Table 5.2.2.

Table 5.2.2: Challenges, Impediments and Impacts for Investment in Kenya and Mombasa Type of Challenges and Impediments Impact  Progress of regional  Limited attraction for FDS integration  Security concerns  Increasing investment risk since will require Business additional cost for security management and Environment insurance.  Administrative procedures,  Limiting the attraction of FDI with compliance taxation and corruption restriction. Kenya  Skill and cost of labour  Investment of labour intensive industries will consider the cost performance through their skill. Operation  Electricity price  Will be the consideration to the investors Costs utilizing much electricity.  Cost of transportation  Challenges to the industries which relies on the logistic condition.  Availability of large area for  Will limit the investor who requires large land Land industrial land with sufficient area. price Mombasa  Inland transportation cost  Limits the market size (distributable area) by Operation the comparison between competitor, such as cost Dar-es-Salaam, Source: JICA Study Team

The challenges observed in Mombasa is further explained.

(1) Availability and Accessibility of Land

The National Land Commission was established in order to consolidate land for development purposes. Eeffective allocation of land may require further efforts.

Moreover, the availability of quality industrial land is limited. For example, most of the EPZs are single EPZ hosting only one factory. While 15 export processing zones (EPZs) are developed within and in the proximity of Mombasa, well-prepared industrial sites other than EPZs may not be found.

5-14 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Mombasa’s share in the total number of buildings completed in 2010 was only 1.7%. The majority of construction works were done in Nairobi, accounting for over 88%.13 This situation may indicate another constraint, i.e., availability of land.

On the other hand, difficulties may be also observed in access to the land. Regarding to availability of land and land prices, credible information is difficult to obtain especially for those investors coming from outside.

(2) Logistic Performance

Maritime Transport

Table 5.2.3 shows detailed comparison of port charges of two EAC ports. Mombasa charges are generally lower than Dar-es-Salaam both for domestic and transit exports.

Table 5.2.3: Charges of the Port in East Africa Shore Handling (USD) Wharfage (USD) Port Indicator 20foot 40 foot 20foot 40 foot Imports-Domestic 90 90 1.60% Ad Valorem Mombasa Exports-Domestic 90 90 1.00% Ad Valorem (Kenya) Imports-Transit 80 80 1.25% Ad Valorem Export-Transit 80 80 1.00% Ad Valorem Imports-Domestic 105 105 70 105 Dar-es-Salaam Exports-Domestic 56 56 70 105 (Tanzania) Imports-Transit 85 85 70 105 Export-Transit 40 40 70 105 Source: EAC Logistic Performance Survey 2014

Burundi has the longest lead time for standard import/export transactions at 46 days, followed by Uganda at 33 days, Tanzania at 31 days, and Rwanda at 30 days and Kenya at 26 days.

An average port dwell time for Dar-es-Salaam is 10 days and 4 days for Mombasa. Mombasa has improved significantly from an average 5 days in 2013 to 4 days in 2014. However is still longer than international standards of a maximum 3 days port dwell time.

Road Transport

Table 5.2.4 shows comparison of average road freight charges of 40 foot container cargo using Northern and Central Corridor transport routes for imports coming through two EAC ports.

Table 5.2.4: Road Freight Rates Comparisons from Dar-es-Salaam and Mombasa ports to various Destinations in Eastern Africa (in USD) Nairobi Kampala Kigali Bujumbura Goma Juba Destination (Kenya) (Uganda) (Rwanda) (Burundi) (Congo) (S. Sudan) From Mombasa 1,045 3,700 4,800 6,500 7,000 7,500 From Dar-es-Salaam n.a. 4,600 4,300 4,500 4,700 n.a. Source: EAC Logistic Performance Survey 2014

13 KNBS 2013 Statistical Abstract 2012; no update in KNBS 2015

5-15 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Railway Transport

Table 5.2.5 shows indicative rates for transporting a standard 30 tonne 20 foot equivalent container unit using the Tanzania Zambia Railways Authority (TAZARA) and the Kenya Railways Corporation (KRC).

Table 5.2.5: Indicative Rates for Transporting Container using Railway System Rate per USD Distance USD per USD per Origin Destination TEU per (km) km tonne km (USD) tonne Nairobi 530 1,450 2.74 48.33 0.091 Mombasa Kampala 930 2,400 2.58 80.00 0.086 Kapiri Mposhi 1,860 2,000 1.08 66.67 0.016 Dar-es-Salaam Tunduma 970 1,331 1.37 44.37 0.031 Source: EAC Logistic Performance Survey 2014

Tanzanian shippers pay three times less freight charges for railway services than compared to Kenyan, with note that rail freight tariffs in East African are very high in comparison to other regions of the world.

5.2.4 Opportunities of Industrial Development in Mombasa SEZ

Further analysis will be made in order to identify some key issues to narrow down the list to the priority list of potential industries. The industries and Mombasa’s strategic positioning are analysed based on the simplified concept of value chain.

A value chain proposed by Porter can be simplified as shown in Figure 5.2.2 below.14 The following section analyses industries categorised based on the characters.

Inbound Logistics Processing/Operation Outbound Logistics Marketing and Sales Service

Source: JICA Study Team Figure 5.2.2: Simplified Shape of Value Chain

(1) Agro-based Industries

1) Opportunities

Mombasa and the vicinity are endowed with untapped agricultural and fisheries resources which may have further potential for processing and/or exportation. The situation indicates both an opportunity and difficulty for new production sites in Mombasa. The processing of the nearest locations of the source of agro-based and fisheries products have gained more importance in order to rationalise the quality control process. The requirements for food safety, especially in developed countries but increasingly in

14 Originally introduced by Michael Porter in 1985, a concept of value chain indicates the holistic structure of creating value from entire activities of a company.

5-16 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report emerging economies, have gradually become stringent and demanding. It may provide opportunities for processing industries to be located in Mombasa if the products are produced in the vicinity.15

2) Challenges

For newly-introduced products for processing, one of the major issues observed in resource-based processing industries is the need to establish a reliable supply chain.

3) Expanding the Roles of Existing Exported Agro-based Products

Tea Product

Kenya’s major traded commodities through the Port of Mombasa are agro-based or mineral-based products based on the resource endowments in the country. Among them, tea is taken as an example for strategizing the development in Mombasa SEZ.

Tea is mainly produced in the central and western parts of the country. While processing is done in proximity of the production sites, tea auction is held in Mombasa. Tea from 11 countries in East, Central, and Southern Africa are also traded in the auction. The auction is organised by a private body with members from the industries of these 11 countries, including brokers, buyers, tea packers and tea warehouses. Around 85% of Kenyan tea is traded through the auction.16 Tea is exported predominantly to Pakistan, Egypt and the United Kingdom (UK). Tea trade is dominated by six major companies globally; therefore, it is prone to the influence of these buyers.17

Kenya’s tea is mainly traded in bulk, packed only in 60-kg bags. Value addition of tea by packing in tea bags is not commonly done except by some packers.18

The value chain of the industry is shown in Figure 5.2.3 below. Mombasa plays an important role of trading, as circled in red in the figure. Taking the location as the collection point for various teas from the region, a further role may be expected to be played (as circled with the dotted line in the figure).

Resource Based Products Tea Packing and Marketing Processing Service Production Exportation and Sales

Note: the blue arrows represent the activities in Kenya and orange arrows are the activities outside of the country. Red solid line is the role of Mombasa SEZ in short- to medium-term. Red dotted line is the potential role of Mombasa SEZ in the medium- to long-term Source: JICA Study Team Figure 5.2.3: Simplified Tea Value Chain and the Role of Mombasa

15 Based on interviews with the food industry companies 16 FAO (2013) “Analysis of Incentives and Disincentives for Tea in Kenya” MAFAP/SPAAA 17 Ibid. 18 Based on interviews with tea companies and the East African Tea Trade Association

5-17 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report The trading sector in Mombasa has been facing challenges after the tea trading house was set up in Dubai to provide more upscale services collecting teas from various countries. The trading function and some value addition should be first focused on upgrading the chain. It may require streamlining of the trading logistics and administrative procedures to establish favourable environment for the tea trading business.

Agro Processing Product

The share of agro processing products in Kenya are still low and limited to industrial crops (coffee, tea, sugar cane), high-value add crops (fruit and vegetables), and livestock (meat, dairy and eggs). In terms of high value-added crops, Kenya only processes and exports pineapples and beans, this captured around 5% of global trade.

The “Sector Strategy and Analysis of Priority Industrial Sub-Sectors in Kenya (World Bank)” identifies opportunity sub-sectors in the short-term, which consists of; (1) dairy processing, (2) fish processing, (3) meat processing, (4) juice processing, and (5) animal feed production.

The “The Fruit Value Capture Opportunity in Africa (African Centre for Economic Transformation)” describes the opportunity of fruit processing in Kenya as an integrated fruit processor and suggests to given general support to improving the business environment for further development, including transportation infrastructure.

In addition, Economic Partnership Agreement (EPA) with the EU has benefited the Kenyan agro-processing sector mainly for tea, cut flowers, coffee, tobacco and vegetables exports from the EAC. However, most Kenyan produce is still exported in raw form with little value-add taking place in Kenya.

Therefore, the location and functions the SEZ in Mombasa at Dongo Kundu (such as road, port, export processing zone, one stop window and various incentives) can support the development of agro processing sector by establishment of “Food Hub” which consists of an agro-industrial park and free port within the SEZ.

(2) Textile and Apparel

Textile and apparel are one of the leading export processing sectors in Kenya. EPZs host 22 garment export enterprises as well as supporting services for the garment sector. In terms of the role of Kenya in the textile and apparel value chain, it is limited to the process of garment using imported materials. The apparel industry is predominantly buyer driven where the number of suppliers around the world source the limited number of retailers based in developed countries. Although Kenya is a cotton producing country, the apparel sector relies

5-18 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report on third-country fabric provision, i.e., sources from Asian countries.19 Their export market is more or less limited to the US where the AGOA allows duty-free and almost quota-free access.20 While denim pants have been the major products in the past, T-shirts have been more common. On the other hand, in order to cope with logistical issues and the long lead time, some are focusing on uniforms including school, industrial ware and medical scrubs.21

The small batch market is currently growing at a rate of 53% per annum in 2009 to 2010, and 75% per annum in 2010 to 2011, with a total market size of more than USD 500 million in 2012 in the US alone. Small batch markets offer opportunities for SMEs in Kenya on the higher end of the quality spectrum in the premium market segment. Such companies are ideal candidates to exploit the growing small batch market as a primary source for high-quality product design that by-passes the traditional manufacturing supply chain in the EU and US where premium price can be three times as much as a standard product.

AGOA has been extended for a further 10 years until 2025 which now providing more opportunity for investment.

(3) Import of Finished Goods

1) Opportunities

Finished and semi-finished goods remain a major part of traded goods through Mombasa. The traded volume has been expanding in response to the market expansion in the region and filling the gaps caused by its underdeveloped manufacturing sector. An automobile is an example which is predominantly imported through the Port of Mombasa to be distributed to the wide range of destinations in the regional market.

The market size of vehicles shows growth. As seen in Figure 5.2.4, a growing number of vehicles are registered in Kenya. The regional market has also been emerging as seen in the growth of import in Uganda and Tanzania.

19 United States International Trade Commission (2009) Sub-Saharan African Textile and Apparel Inputs: Potential for Competitiveness Production, Fukunishi (2012)” The Kenyan Garment Industry: Is it able to revive in the economic boom?” in Fukunishi ed. Dynamics of the Garment Industry in Low-Income Countries: Experience of Asia and Africa (Interim Report) IDE-JETRO 20 Fukunishi (2012) 21 Based on the apparel-related industry in an EPZ (April 2014)

5-19 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

No.registered 160000 No.registered 60,000 140000 50,000 120000 40,000 100000 Tanzania Motor Vehicle 30,000 Uganda 80000 Motor Cycle 20,000 60000 10,000 40000 0 20000 2008 2009 2010 2011 2012 2013

0 2009 2010 2011 2012 2013

Source: KNBS, Statistical Abstract 2014 Figure 5.2.4: Kenya’s Number of Newly Registered Vehicles and Motorcycles (left) and Import of Passenger Vehicles in Uganda and Tanzania (right)

2) Challenges

Regarding manufacturing, the automobile industry has developed a global supply chain in order to maximise efficiency. A major agglomeration, for example in Thailand, has a network of suppliers of parts within the country, as well as in China, Japan and surrounding countries such as Cambodia and Lao PDR. The Asian automobile industry is in fact sourcing parts among these countries to be assembled in various locations.

3) Strengthening and Expanding the Roles

Within the global value chain, Mombasa plays the role as shown in Figure 5.2.5. While a limited quantity of production of automobiles using complete knock-down kits is undertaken in Kenya, the majority of vehicles are imported as used cars.

Components Wholeseale Production & Assembling Logistics Service and Retail Procurement

Note: The blue arrows represent the activities in Kenya and orange arrows are the activities outside of the country. A green arrow indicates the activity done both inside and outside Kenya. Red solid line is the role of Mombasa SEZ in short- to medium-term. Red dotted line is the potential role of Mombasa SEZ in the medium- to long-term. Source: JICA Study Team Figure 5.2.5: Simplified Motor Vehicle Value Chain and the Role of Mombasa

Another role of the production is actually found in the products for aftermarket: a limited number of auto parts for after-market are also manufactured in the country. The expansion of the assembly capacity may have to wait for the economic growth which may induce consumers’ preference shift from used cars to new cars. In the meantime, the production of the products for after-market may have some opportunities.

5-20 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report On the other hand, imported used cars form a different value chain. Wholesale and retail functions are active for used cars. However, the trading practice is neither structured nor organised. It is undertaken by numerous retailers with limited inventories.22 Regarding the quantity and logistics route of motor vehicles, Mombasa may first expand the role of logistics and then to wholesale, retail and services apart from the opportunities in the manufacturing and trading of new cars..

(4) Iron and Steel

1) Opportunities and Challenges

One of the leading export commodities to the regional market is iron and steel and their fabricated products. Export of base metal and metal fabricated products to Common Market for Eastern and Southern Africa (COMESA) members amounted to KES 10.9 billion, which is 6% of the total export to COMESA countries (see Table 5.2.6 below).23

Table 5.2.6: Export of Kenya’s Iron and Steel Products Iron and Steel Bars, Rods, Angles, etc. Year 2008 2009 2010 STIC 676 EAC and COMESA Total (USD million) 14.38 11.91 15.63 Total (USD million) 18.7 13.69 19.02 % Share of EAC and COMESA (%) 76.9 87.0 82.2 Source: JICA Study Team by the data of UN-COMTRAD

Kenya’s iron and steel sector starts from hot roll milling using scrap metals and imported billet and cold milling using imported hot-rolled sheet. Further treatment for pipes and fabrication are done. Some firms locate their subsidiaries in neighbouring countries and source the materials from Kenya for fabrication. No blast furnace is available in Kenya.24 The raw materials and semi-finished goods are mainly imported. The breakdown of imported iron and steel products is shown in Figure 5.2.6 below.

22 Based on interviews with trading companies in Nairobi 23 Based on the data of KNBS (2013) Statistical Abstract 2013. Total of Universal, Plates, etc., of Iron and Steel, Iron and Steel Bars and Rods, etc., Storage and Transport Metal Containers, Manufactures of Base Metals. 24 Based on interviews with iron and steel sector firms.

5-21 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

tubes, pipes Ingots and and hollow Wire of iron other primary profiles or steel forms of iron 11% 2% or steels Iron and steel 13% bars, rods, angles, shapes and sections 15% Flat‐rolled products of alloy steel Flat‐rolled 1% Flat‐rolled products of products of iron or non‐ iron or non‐ alloy steel, not alloy steel, clad, plated or clad, plated or coated coated 51% 6% Source: JICA Study Team based on the data of UN-COMTRAD Figure 5.2.6: Kenya’s Import of Iron and Steel Products (2010)

Mombasa’s location in the proximity to the port may be opportunities for warehousing and wholesale functions as well as provision of semi-processed materials of these products.25

2) Expanding Value-Added Logistics and Production

The value chain of iron and steel products and the position of Mombasa can be depicted in Figure 5.2.7.

Raw Assembling, Marketing Materials & Service Processing Logistics and Sales Procurement

Note: The blue arrows represent the activities in Kenya and green arrow indicates the activity done both inside and outside Kenya. Source: JICA Study Team Figure 5.2.7: Simplified Iron and Steel and Metal Fabrication Vehicle Value Chain and the Role of Mombasa

Major iron and steel companies locate their headquarters in Kenya and their subsidiaries in some major urban centres in neighbouring countries partially due to the weight of the products. Some minor processes such as cutting can be done by subsidiaries. While major production is seen in Mombasa, according to the interview with the industry, the

25 Based on interviews with iron and steel and construction material companies in Kenya (April and October in 2014).

5-22 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report production sites in Nairobi serve Kenya, Uganda and inland Tanzania, whereas Dar es Salaam serves coastal Tanzania and Rwanda.

There are hot mills with induction furnace using scrap metals. Recent Eastern African Community (EAC) ban on exportation of scrap metal may push the development of this type of production. However, because of the transportation cost of scrap metals from major urban areas such as Nairobi, the likelihood of establishing facilities in Mombasa may be limited.

(5) Non-Industrial Job Creating Sectors

1) Opportunities

Mombasa is the second largest city in Kenya where the located various universities and largest sea port in the EAC region. Moreover, Mombasa also the most famous beach resorts in the country accommodates both domestic and foreign tourism. Those existing potential can create new business in SEZ to divert the current Kenyan industry by developing non-industrial job creating sectors, such as ICT (Information and Communications Technology) and MICE (Meeting, Incentives, Conference and Exhibition).

2) Challenges and Expanding the Roles of Non-Industrial Job Creating Sectors

Information Technology related sectors

Kenya to be competitive in a global market, uses of significant services from information technology related sectors such as business processing or communication infrastructure are necessary. This proficiency in IT and communications brings value additions, cost and efficiency savings to firms and enables the growth of industries.

The challenges are; (1) necessary installation of best-in-class infrastructure, especially on telecommunications and sufficient power supply, (2) extension of talent pool to supply sector growth demand, and (3) determination of clear information technology related strategy focusing on spurring innovation and positioning Kenya as an information, communications and technology hub.

The Government of Kenya was sets following action plan for the 1. Build an IT services cluster. 2. Support a domestic innovation programme by investing in a programme focusing on the scaling of technology incubation and acting as a value chain catalyst. 3. Investment in focused training through a national education programme. 4. Ensure local content requirements in government IT projects. 5. Brand Kenyan ICT by develops a promotion campaign.

5-23 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Tourism sector as a basis of MICE

Tourism accounts for close to 1.5% of Kenya's GDP and 9% of the country's total formal employment. It is a major source of Kenya's foreign exchange earnings, and has significant indirect job creation effects due to linkages to other relevant economic sectors.

Business-related tourism is a high potential area for Mombasa to invite for the meetings, conferences and exhibitions. Historical and nature values of Mombasa together with the incentives provides by the SEZ will increase the capacity in this sector.

5.2.5 Categorisation of Strategic Industries for Mombasa SEZ

Based on the analysis in the preceding section, the type of potential industries may be categorised as shown in Table 5.2.7. Table 5.2.7: Types of Industries to be Located in Mombasa Type of Industries Description Nature of the Industry Trade hub for export Industries located in Mombasa to Export-oriented or potential of export. form a trade hub. Trade and logistics Industries to streamline the trading Capturing demand of the domestic and regional hub for regional and whereby marketing activities can be demand. domestic market conducted. Imported with a large amount. Imported as finished goods.

Processing of locally Processing of locally available Resource –based Industries with possibility in available resources resources mainly for export and procuring raw materials from the areas partial domestic consumption. surrounding Mombasa Processing of Processing of imported material for Relying on the imported material. imported materials the domestic and export market. Semi- or finished process can reduce the quantity for domestic and for transportation. export market Source: JICA Study Team 5.2.6 Priority List of Potential Industries for Promotion in Mombasa SEZ

(1) Factors for Prioritizing

In order to identify potential industries, the factors shown in Table 5.2.8 will be applied to screen the industries included in the list.

Table 5.2.8: Factors for Selecting Potential Industries Factors Criteria Rationales and points to be reviewed Export Volume of exported goods through  Dependency on sea route for exportation the Port of Mombasa and their degree  Exhibited export-orientedness of growth Import Volume of imported finished goods  Demand in the domestic and regional markets through the Port of Mombasa and their growth rate Volume of imported semi-finished  Demand in the domestic and regional markets goods and raw materials through the  Possibility of processing, assembling and finishing in Port of Mombasa Mombasa Resource Endowment Any available raw material Comparative advantage, possibility of processing locally Human resources Specific needs of human resources Some industries require specific skilled labour and endowment nurtured from available industrial technical professionals who can be nurtured through the

5-24 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Factors Criteria Rationales and points to be reviewed activities existing industrial activities. In case of these industries, availability of these existing industries in Mombasa will be assessed. Relation with other Strong relation with other industries Observed ripple effect in development as a result of industries (as a result of forward and backward linkage with production or trading activities with other linkages) products/services to enjoy forward/backward linkage Logistics factor Whether the proximity to the centre Some industries prioritise the proximity to the consumer. of the targeted market is required or Therefore, among the industries targeting the domestic not and regional industries, those which do not stress the proximity to the market are evaluated as more positive for Mombasa. Production process and transportation Among the products for the domestic and regional market cost with a heavy reliance on imported materials, some products may be reduced in size and weight before reaching the sites for the next production process or final markets. Notes: The criteria for licensing of the enterprises will be prescribed by the SEZ Regulation Source: JICA Study Team (2) Priority List of the Potential Industries

The industries which are listed in the relevant policy documents (Table 5.2.1) are first listed for the analysis. Furthermore, industries which are with some agglomerations or key facilities in Mombasa are also listed (e.g., Petroleum products, consumer goods, rubber and plastics, motor vehicles, and logistics & services). The candidates industries are further assessed in terms of the factors listed in the Table 5.2.9. Those industries which exhibit in more factors can be regarded as with higher potentials. Those screens are potential industries. In addition to these industries, two industries are included in the list, namely, Packaging industry and Logistics & services. The former is regarded as important due to the observed strong correlation with other industries. The latter, on the other hand, is also included with its importance regarding the role of Mombasa as the logistics hub for the region.

5-25 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Table 5.2.9: Priority List of the Industries for Mombasa SEZ Factors Determining Mombasa's Competitiveness as Industrial Location Trade Volume and Growth Industry Import of Complete, Resource Endowments in Human Resource Relation with Other Export from Logistics Factors Semi-finished or the Coast Endowment Industries Mombasa Raw Materials Agro-processing mainly for the domestic and 〇〇 East and Southern Africa Agro-processing Agro-processing mainly for export to outside of ○ ○○ East and Southern Africa Fish and marine resource processing Fish and marine resource processing ○○ Textile & clothing Textile ○ Wearing apparels ○○ ○ Leather and leather products Leather products ○ ○ Consumer goods ○○ ○ ○ Chemical Industries Chemical industries (Fertilizer, other chemical ○○ ○ products) Pharmaceuticals Pharmaceutical and medical pr oducts ○ Petroleum products Petroleum and petrochemical products ○○ ○○ Electricity generation Energy Bio-fuel Rubber and plastic Rubber and plastics ○○ ○○ ○ ○ ○ Paper and paper products Packaging industry Printing Cement, glass sheet etc Depending on the Construction materials ○ ○○ Products

Iron and Steel Basic metals ○○ ○ ○ Metal fabrication Can, structured metal etc ○○ Agro- and other machinery for Machinery and equipment ○ manufacturing and general use Electrical appliances & equipment Electrical appliances and equipment ○ ○ Electrical generation equipment ○ Motor vehicles Motor vehicles ○○ Cut flower and Fresh produce Cut flower and fresh produce ○ Infrastructure development services Infrastructure development services ○ ○

Logistics & services Logistics & services ○○ ICT BOP, data processing and management for ○ MICE (conference & MICE ○○○ exhibision&accomodation) 〇 Exhibits strength in the factor Industries with higher potentials (exhibiting strength in more than three factors) Industries considered important with strong relation with other industries Source: JICA Study Team 5-26 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 5.3 Issues and Obstacles for Investment Especially to Priority Industries

(1) Institutional Frameworks and Incentive Packages

Specific issues such as duty arrangement and levies and fees charged on the processing industries for the domestic and regional market was brought up in the meetings with the domestic and international manufacturing and trading companies. The current three-band customs duty structure of EAC does not favour importation of the finished goods outside the customs territory unless zero rated. The issue of the customs arrangement will have an impact especially at the stage of expansion from trading to manufacturing in SEZ.

(2) Site Preparation with Price and Quality

As seen in the challenge of Mombasa, availability and accessibility of land is an issue. Moreover, insufficient information on land availability and price can discourage the investment demand. Regarding other various costs of operation, the balance between quality of infrastructure and land price is also an issue in targeting quality investors.

(3) Absence of Driving Force which Maintains the Concepts of Hubs and Finance, and Coordinates Implementation of Development

Focusing on anchor industries is an important strategy for inducing the further formulation of functional agglomeration in the SEZs. Also, it is observed that a strong driving force is required for the formulation to start.

Two critical issues can be raised: identification of developers and/or identification of coordinator of various stakeholders including tenants and relevant governmental regulatory and administrative offices. It is especially critical for industries with a number of stakeholders such as the tea industry. While zone development should be economically viable, anchor industries that form the nucleus of the zone should also be extensively sought. Quality developers and/or coordinators who may be aware of the demand of forming clusters of relevant industries may, therefore, be necessary though the latter may be required only at the preparatory phase.

5.4 Anchor Industries for Mombasa SEZ

5-27 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Whereas these investors can start from trading, further diversified activities are expected as part of forward and backward linkages. The already established volume of trade and brands of companies involved are also expected to induce investment of related industries.

5-28 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

CHAPTER 6 CURRENT CONDITIONS OF MOMBASA AND DONGO KUNDU AREA

6.1 Industrial Development Trend in Mombasa

Currently, there are many export processing zones (EPZs)/industrial parks in the Mombasa area. Some of the existing EPZs are shown in Table 6.1.1 and Figure 6.1.1. Most of these EPZs are occupied by garment industry, and most of them are fully occupied. In order to attract more foreign/domestic investment to Mombasa, a new special economic zone (SEZ) with better incentives will be necessary for the economic growth of Mombasa and Kenya.

Table 6.1.1: List of Current EPZs/Industrial Parks in Mombasa Area NAME LOCATION INDUSTRY AREA STARTED NO. OF INDUSTRIES OCCUPANCY No. OPERATION STATUS Golden Industrial Park Shimanzi,Mombasa INDUSTRIAL 305,000 Sq Ft. - - Fully occupied Ltd.(G.I.P) PARK Warehouse: 32,000 SqFt. 1 Perimeter: 4M Stone wall boundary wall Kipevu EPZ Zone Kipevu,Mombasa EPZ - September,1996 Three(for garment support - 2 services and accessories) Mazeras Kenya EPZ Ltd. Mazeras,Mombasa EPZ Approx.238,066SqFt. - One (hosts Hantex Garments EPZ 100% occupancy 3 Ltd.) Mvita Industrial Park EPZ Changamwe,Mombasa EPZ Industrial and office built up February,2004 One(hosts Ashton Apparel EPZ- 100% occupancy 4 Ltd. space of approx. 91,400 leading garment manufacturing SqFt. enterprise) Pwani Industrial Park EPZ Miritini,Mombasa(for EPZ Industrial and office built up July,2000 One(hosts Kapric Apparel EPZ 100% occupancy 5 Ltd. merly known as Birch space of approx. 143,583 Ltd.-leading garment Investment EPZ Ltd) SqFt. manufacturing enterprise) Emirates Agencies EPZ Ltd. Jomvu,Mombasa EPZ Approx.100,000SqFt. 1993/7/1 One (hosting one apparel 100% occupancy 6 manufacturing enterprise- Mombasa Apparel EPZ Ltd.) Zois EPZ Ltd.(ii) Mtwapa,Mombasa EPZ Industrial - - Total completed, 7 buildings:210,000Sq.Ft suited to dry industries Source: JICA Study Team

7. Zois EPZ

3. Mazeras EPZ

6. Emirates EPZ 5. Pwani EPZ 4. Mvitaz EPZ 2. Kipevu EPZ

1. Golden Industrial Park

Source: JICA Study Team Figure 6.1.1: Locations of Current EPZs/Industrial Parks in the Mombasa Area

6-1 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 6.2 Topographic Conditions of Dongo Kundu Area

6.2.1 Outline of the Basic Data

To grasp the existing condition of the Dongo Kundu area, where the SEZ will be located, a satellite image named World View-2 with 50 cm resolution was utilised. A 2 m contour line was prepared from the image, and it was determined that the highest elevation is over 70 m while the lowest is 0 m (sea level).

6.2.2 Site Surveys

Based on the satellite image, the JICA Study Team conducted several site recognition surveys to clarify the necessary geographical issues that should be considered during the preparation of the plan.

(1) Existing Structures

From the satellite image, the structures which may be able to be the target for compensation can be confirmed. The structures are mostly located on the top of the hill.

(2) Kaya

A Kaya forest is considered to be an intrinsic source of ritual power and the origin of cultural identity and also a place of prayer for members of this particular ethnic group. Five Kayas are requested to be protected by the local community. Determination survey of the Kayas was conducted through the attendance of the local people.

Source: JICA Study Team Source: JICA Study Team Figure 6.2.1: Structures on Satellite Image Figure 6.2.2: Kayas on Contour Map

6-2 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 6.2.3 Bathymetric Conditions

(1) Outline of the Survey

A bathymetric survey was carried out in order to grasp the existing seabed undulations in the northern area of the SEZ. Also, a seismic profiling survey was conducted to roughly understand the geotechnical strata of the surveyed area. The survey was subcontracted to a Mombasa-based survey company (Southern Engineering Company Limited).

(2) Bathymetry Source: JICA Study Team The bathymetric survey was carried out at the future access Figure 6.2.3: channel and turning basin area with the following scope and Reference Station schedule: - Field Survey Period: 12 May to 21 May 2014 - Survey Area: Approximately 300 ha in the north area of Dongo Kundu - Survey Context: Bathymetric survey, seismic profiling survey, shoreline survey, and tide observation - Survey Intervals: 25 m (cross line of 100 m) - Frequency of the Sounder: 200 kHz, 33 kHz

Source: JICA Study Team (3) Bathymetric Map Figure 6.2.4: Erected Tide Pole Longitudinal lines were run at 25 m spacing with cross lines at 100 m interval. In addition, a few lines were run along the mangrove limit during peak high water to delineate the minimum or minus sounding. As a result of the bathymetric survey, a bathymetric map was produced with a scale of 1:2,000. The contour lines were drawn at every 1 m. The minimised version of the bathymetric maps is shown in Figure 6.2.5 and Figure 6.2.6. As expected, the western part of the surveyed area is deep enough to reach -17.0 m (C.D.). The bathymetric map will be utilised for access channel and basin planning and dredging quantities will be estimated based on the bathymetric map.

6-3 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 6.2.5: Bathymetry for Western Part of Surveyed Area

Source: JICA Study Team Figure 6.2.6: Bathymetry for Eastern Part of Surveyed Area

(4) Seismic Survey

To undertake Seismic Surveya sub-bottom profiler was used. Acoustic equipment is capable of penetrating near-surface sedimentary layers and provides detailed high resolution images. The amount of sub-bottom penetration is controlled primarily by the sediment type. Typical penetration is anywhere between 0 and 50 m. Applications of the sub-bottom profiling (SBP) include mapping of the soil boundaries and geological relations in the uppermost layers of the

6-4 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report seabed, assessment of soil type, and localisation of buried objects and pipelines. Figure 6.2.7 shows the longitudinal sub-bottom profile for the surveyed area. By the result of the survey, the location of the port will be considered. The details are presented in the survey report, which was separately prepared.

Source: JICA Study Team Figure 6.2.7: Sub-bottom Profiling

6.3 Existing Infrastructure related to Dongo Kundu

6.3.1 Existing Road Network and Transportation

(1) Off-site Road Network

The existing road network surrounding the SEZ is shown in Figure 6.3.1. The transportation network mainly consists of two major roads, namely, National Road (NR) A109, which connects Nairobi and Mombasa and NR-A14, which connects Mombasa and Tanzania. Currently, the use of ferry is necessary to connect from Mombasa Island to NR-A14. Mombasa Southern Bypass is under design stage and is planned to be constructed by 2018. At that time, the accessibility of the SEZ from airport and city centre will be improved.

6-5 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 6.3.1: Current Road Network and Future Mombasa Southern Bypass Roads

National Road A14 National Road A109 Ferry Terminal Source: JICA Study Team Figure 6.3.2: Condition of Major Accesses

(2) On-Site Road Network

The existing road within the SEZ can be divided into two categories, namely, main road, which is paved partly by gravel (6 m width), and common unpaved rural road (various widths). Main road connects public facilities such as schools, community centre, and existing houses.

Main Gravel Road Common Unpaved Rural Road Source: JICA Study Team Figure 6.3.3: Condition of Road within the SEZ

6-6 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (3) Mombasa Southern Bypass Road

The Mombasa Southern Bypass Road Project will connect city centre directly with the SEZ and NR-A14 towards Tanzania without using the ferry service. As of June 2015, construction work is underway through an official development assistance (ODA) loan from the Government of Japan. The packages for this project are shown as in the following Table 6.3.1.

Table 6.3.1: Schedule for Mombasa Southern Bypass Road Project Package Length Lanes Route Completion 1 9.47 km 4 Mombasa Port to Mwache (Mombasa-Nairobi Road) 2016 2 8.38 km 2 Mwache to Mteza (border of Dongo Kundu) 2018 3 7.67 km 2 Mteza to NR-A14 2016 Source: Preparatory Survey on Mombasa City Road Development Project (MCRDP), JICA, 2011

According to the Preparatory Survey on Mombasa City Road Development Project (MCRDP), there is a planned U-turn bay named Dongo Kundu within the SEZ area, and Dongo Kundou U-Turn Bay another U-turn bay named Mkumbi just u outside of the border of the SEZ. Since access from the SEZ will only be Mkumbi U- Turn Bay allowed by U-turn bays, it is necessary to make coordination soon after the land use plan and traffic volume projection of the SEZ are determined so as to Source: MCRDP harmonise the design of the U-turn bay Figure 6.3.4: Location of U-turn Bay for better implementation, operation, and traffic security of the area. Figure 6.3.5 shows the design of the proposed U-turn bay for Dongo Kundu.

to DK‐SEZ

to DK‐SEZ Source: MCRDP Figure 6.3.5: Proposed Design of Dongo Kundu U-turn Bay

Currently, no logistics port facility exists in the Dongo Kundu area, except for a navy port which is located east of the SEZ. All port facilities of the existing Mombasa Port are located

6-7 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report on the opposite (northern) side of the bay.

6.3.2 Existing Mombasa Port

(1) Outline of Existing Mombasa Port

The existing Mombasa Port serves not only Kenya but also the Eastern African hinterland countries of Uganda, Rwanda, Burundi, Democratic Republic of Congo, and Southern Sudan. The port is managed and operated by KPA, which is an autonomous government authority. The port consists of the following facilities: 1) Kilindini Harbour and Port Reitz on the south and southeast of the Mombasa Island, and 2) Old Port and Port Tudor on the north of the Mombasa Island. Mombasa Port is a multipurpose port capable of handling all types of cargo including containers, general cargo, liquid and dry cargo, and passengers. Source: KPA The existing berths include 15 m Figure 6.3.6: Location of Mombasa Port (maximum) deep water berths, two oil terminals to accommodate crude oil tanker up to 100,000 DWT draft ranging between 9.75 and 13.25 m, general cargo berths (Berth Nos. 1 to 12) which can accommodate Ro-Ro ship and cruise ship with maximum length of 300 m and draft of 9.75 m, container terminal (Berth Nos. 16, 17, 18 and 19) which can accommodate Panamax container ships of 250 m deep with back-up area of 14 ha for stacking and handling containers, and five ship repair facilities.

(2) Ongoing Development

Currently, KPA is constructing the Second Container Terminal which is situated at the west of the existing Kipevu Oil Terminal. Berth No. 20 (210 m) and Berth No. 21 (300 m) will be constructed under the Phase 1 development, which is expected to be completed in early 2016. The terminal operation will be undertaken by a private concessionaire. Phase 1 of the Second Container Terminal will provide an additional capacity of 470,000 TEUs.

Meanwhile, Phase 2 and Phase 3 development projects would also be planned toward the western direction under the Japanese ODA loan scheme. Features of each berth by phase are shown in Table 6.3.2 and layout of the Second Container Terminal is shown in Figure 6.3.7.

Considering the terminal capacity of the existing Mombasa Port and the rapidly increasing container cargo demand, Phase 2 and Phase 3 of the Second Container Terminal development must be swiftly implemented and further development for the subsequent Phase 4 should also be scrutinised under the framework of the JICA Dongo Kundu Port Mombasa Master Plan

6-8 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Study, taking into account the case that some cargoes may be shifted to the Dongo Kundu area.

Table 6.3.2: Features of the Second Container Terminal Berth Length Depth Capacity Completion Year Phase Berth Type (m) (m) (1,000 TEUs) (Expected Year) 1 Container 300 15 470 Early 2016 1 Multipurpose 210 11 - Early 2016 1 Small craft berth 200 4.5 - Early 2016 2 Container 300 15 470 2020 3 Container 300 15 470 2023 Source: JICA Study Team based on information gathered

Phase 3

Phase 2

Phase 1

Source: KPA Figure 6.3.7: Layout of the Second Container Terminal

6.3.3 Existing Power Supply System

(1) Power Demand and Supply in the Coast Region

Table 6.3.3 shows the number of customers, total sales, and maximum demand in the Coast region. The number of customers in Nairobi has increased by approximately 20,000 annually from 2009/10 financial year. In addition, the latest data on total sales and maximum demand in the Coast region showed a slight decrease from the previous year.

Table 6.3.3: Power Demand and Supply in the Coast Region 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Number of Customers 121,864 139,245 157,731 178,095 201,425 221,410 Total Sales (GWh) 929 979 1,027 1,118 1,147 1,134 Maximum Demand (MW) 180 199 195 220 271 261 Source: Kenya Power - Annual Report and Financial Statements - Financial Year Ended - 30 June 2013

6-9 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 6.3.4 shows the sales of electricity by customer category. The sales for Large Commercial and Industrial Load for 11 kV, 33 kV and 132 kV in 2012/13 are increased from the previous year.

Table 6.3.4: Sales of Electricity by Category in Coast Region Sale of Electricity by 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Category (GWh) DC: Domestic 214 214 227 246 263 269 SC: Small Commercial 91 127 132 139 140 145 CI1: Large Commercial 109 105 214 218 223 211 and Industrial Load (415 V) CI2: Large Commercial 0 182 192 197 195 209 and Industrial Load (11 kV) CI3: Large Commercial 0 149 147 170 171 176 and Industrial Load (33 kV) CI4: Large Commercial 0 0 0 0 0 0 and Industrial Load (66 kV) CI5: Large Commercial 0 90 106 139 121 134 and Industrial Load (132 kV) IT: Off-peak 5.0 0 1 1 0.4 0.3 SL: Street Lighting 1.3 2.2 2.8 3.1 2.8 5 REP Schemes 14.5 16.0 18.3 20.9 21.2 22 Source: Kenya Power - Annual Report and Financial Statements - Financial Year Ended - 30 June 2013

(2) Power Generating Facilities

Table 6.3.5 shows the power generating facilities. The total generated capacity of the main network system is 1,766.36 MW as installed capacity and 1,652.34 MW as the actual output capacity. It is divided into several categories including hydropower, geothermal, thermal, wind, and solar. Meanwhile, hydropower occupies 46.22% of the total generated capacity for the main network system. Because of the large portion of hydropower, seasonal variations in power generation occur due to the varying amount of rainfall.

Table 6.3.5 Power Generating Facilities Capacity (MW) Capacity (MW) No. Power Source Installe No. Power Source Installe Effective Effective d d 1 Hydro (46.22%) 816.35 766.9 3 Thermal (39.26%) 693.4 634.7 1.1 Tana 20.0 12.4 3.1 Kipevu I Diesel 75.0 60.0 1.2 Kamburu 94.2 90.0 3.2 Kipevu III Diesel 115.0 115.0 1.3 Gitaru 225.0 216.0 3.3 Fiat – Nairobi South 0.0 0.0 1.4 Kindaruma 72.0 48.3 3.4 Embakasi Gas 60.0 27.0 Turbines 1.5 Masinga 40.0 40.0 3.5 Garissa & Lamu 8.9 7.1 1.6 Kiambere 164.0 164.0 3.6 Rural Electrification 16.0 11.6 Programme 1.7 Turkwel 106.0 105.0 3.7 Iberafrica 108.5 108.5 1.8 Sondu Miriu 60.0 60.0 3.8 Tsavo 74.0 74.0 1.9 Sangoro 21.15 20.0 3.9 Mumias 26.0 21.5 Cogeneration 1.10 Small Hydros 13.7 10.9 3.1 Rabai Power 90.0 90.0 0

6-10 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Capacity (MW) Capacity (MW) No. Power Source Installe No. Power Source Installe Effective Effective d d 1.11 Imenti Tea 0.3 0.3 3.1 Aggreko Energy to 120 120 Factory 1 Kenyan Market (Feed-in Plant) 2 Geothermal 250.21 244.94 4 Wind (0.33%) 5.9 5.3 (14.17%) 2.1 Olkaria I 45.0 44.01 4.1 Ngong 5.3 5.1 2.2 Olkaria II 105.0 101.0 4.2 Rural Electrification 0.6 0.2 Programme 2.3 Eburru Hill 2.44 2.16 5 Solar (0.03%) 0.5 0.5 2.4 OW37 Olkaria 5.37 5.37 5.1 Rural Electrification 0.5 0.5 Mobile Wellhead Programme 2.5 OrPower 4 92.4 92.4 Total: 1766.36 1652.34 Source: Kenya Power - Annual Report and Financial Statements - Financial Year Ended - 30 June 2013

(3) Power Transmission Line System

The power transmission line system in the SEZ is shown in Figure 6.3.8. At present, the SEZ has no power plant and has only one 11 kV overhead distribution line from the 33/11 kV Likoni Substation, which sources power from the 132/33 kV Rabai Substation. The total length of distribution line inside the SEZ is around 3.9 km.

Source: Kenya Power & Lighting Company Ltd. (KPLC) Figure 6.3.8: Existing Layout of Power Transmission Line System

(4) Power Supply System

The existing 132/33 kV and 33/11 kV substations for the surrounding area of the SEZ is shown in Table 6.3.6. Power to the said surrounding area is supplied by means of 11 kV

6-11 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report distribution lines from the 33/11 kV Likoni Substation, which is supplied by the 132/33 kV Kipevu Substation.

There are no 132 kV or 220 kV lines in the SEZ area. The existing 11 kV distribution lines are used for local consumer only and not for industrial load. Since the load of the SEZ will be increased favourably, the existing 11 kV distribution lines will not meet the load demands. Also, the transformer capacity of existing substations will become insufficient.

Table 6.3.6: Existing 33/11 kV Substation for the Surrounding Area of SEZ Name of Substation Voltage Description Remarks 1. Kiambere Power Plant 11/235 kV Generator : 2 x 72 MW Transformer : 2 x 87.5 MVA 2. Rabai Substation 220/132/11 kV Transformer 1 : 2 x 90 MVA Power source of: 132/33 kV Transformer 2 : 2 x 45 MVA Galu, Mwabungo, Mbaraki, Likoni, Diani 3. Kipevu Substation 11/132 kV Generator : 7x13.57 + 6x14.4 MW Power source of: 132/33 kV Transformer : 2x60 + 1x30 MVA Mbaraki 4. Galu Substation 132/33 kV Transformer : 2 x 23 MVA 5. Mbaraki Substation 33/11 kV Transformer : 2 x 23 MVA 6. Likoni Substation 33/11 kV Transformer : 2 x 7.5 MVA 7. Diani 33/11 kV Transformer : 1 x 23 MVA 8. Mwabungo 33/11 kV Transformer : 1 x 7.5 MVA 9. Msambwenni 33/11 kV Transformer : 1 x 7.5 MVA Source: Kenya Power & Lighting Company Ltd. (KPLC)

The single line diagram of the power supply system for the surrounding area of the SEZ is shown in Figure 6.3.9.

KIAMBERE S/S RABAI S/S KIPEVU S/S

KAMBURU S/S 7x13.57 MW 220 kV 220 kV 220 132/220 kV kV 132 6x14.4 MW 33 kV

2x72 MW 2x87.5 MVA 2x90 MVA 2x45 MVA 11/235 kV 220/132/11 kV 132/33 kV 132 kV 132

2x60+1x30 MVA 2x23 MVA 132/33 kV 132/33 kV

GALU open open

1x7.5 MVA 1x7.5 MVA 1x23 MVA 2x7.5 MVA 2x23 MVA 33/11 kV 33/11 kV 33/11 kV 33/11 kV 33/11 kV

MSAMBWENI MWABUNGO DIANI LICONILIKONI MBARAKI

11kV OHL TO DK-SEZ Source: Kenya Power & Lighting Company Ltd. (KPLC) Figure 6.3.9: Existing Single Line of Power Supply System in SEZ

6.3.4 Existing Water Supply System

(1) Present Conditions of Water Supply in the SEZ Area

6-12 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Main water source for the Coast Province is a bulk water supply system managed by the Coast Water Supply Board (CWSB), consisting of Mzima Pipeline, Marere Pipeline, Tiwi Wellfield, and Sabaki Pipeline as water resources spectrum as shown in Figure 6.3.10. The bulk water supply system supplies Mombasa, Kwale, Kilifi and Taita Taveta counties. Taveta Township and the surrounding villages are supplied with water from Njoro Kubwa Spring.

Source: Final Full F/S Report of Water Supply Master Plan for Mombasa and Other Towns within the Coast Province, March 2013, CWSB & WB Figure 6.3.10: Existing Water Supply Situation

The present capacity of water resources is summarised in Table 6.3.7.

Table 6.3.7: Present Water Supply Capacity Water Source Capacity (m3/day) Mzima Springs 35,000 Marere Springs (with Pemba) 12,000 Baricho Wellfield 90,000 Tiwi Aquifer 13,000 Njoro Kubwa Springs 3,000 Tana River 1,400 Shella Aquifer 1,800 Total 149,200 Source: Water Supply Master Plan The water qualities of Msambweni Well (in Tiwi Aquifer) and Marere Spring are presented in Table 6.3.8.

6-13 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 6.3.8: Water Source Quality and Kenyan Standard Msambweni-Well Marere S pring Sr. No. Parameters Unit Kenya S tandard (21/08/2013) (17/072013) 1 pH Value 7.2 7.2 6.5~8.5 2 Turbidity NTU 0.25 0.74 Max. 5 3 Conductivity μS/cm 1038 10.5 Max. 2000 4 Total Hardness mg/l 312 - Max. 500 5 Chloride (Cl) mg/l 77 29 Max. 500 6 Total Alkalinity mg/l 380 30 Max. 500 7 Magnesium (Mg) mg/l 32.70 - Max. 150 8 Calcium (Ca) mg/l 54.27 - Max. 250 9 Total Dissolved Solids mg/l 519 75.25 Max. 1000 10 Salinity mg/l 127.05 47.85 Max. 500 11 Iron (Fe) mg/l - - Max. 0.3 12 Colour Hazen 2.5 2.5 Max. 15 13 Others Smell - - Non-Objectionable

Source: Kwale Water and Sewerage Company 6.3.5 Existing Drainage and Sewerage Systems

(1) Climate Condition

A rainfall station in the area is located in the Mombasa (Moi) International Airport about 4 km north of the SEZ. The station is managed and operated by Kenya Meteorological Department. The monthly record for 2013 and the monthly average from 1970 to 1990 are summarised in Table 6.3.9 and Table 6.3.10, respectively. Table 6.3.9: Climatological Information in 2013 Minimum Temperature Maximum Temperature Monthly Rainfall Number of Rainy Month (deg. C) (deg. C) (mm) Days Jan 23.2 32.0 33 4 Feb 23.6 32.3 15 2 Mar 24.2 32.6 56 5 Apr 23.9 31.2 163 10 May 22.7 29.3 240 14 Jun 21.3 28.4 80 10 Jul 20.4 27.7 70 11 Aug 20.3 27.9 66 9 Sep 20.8 28.8 72 9 Oct 22.0 29.6 97 10 Nov 23.1 30.6 92 9 Dec 23.3 31.6 75 7 Average 22.4 30.2 88.3 8.3 Total - - 1059 100 Source: Kenya Meteorological Department

Table 6.3.10: Past Climatological Information (1970-1990 Monthly Average) Minimum Temperature Maximum Monthly Rainfall Number of Rainy Month (deg. C) Temperature (deg. C) (mm) Days Jan 22.0 33.2 33.9 3 Feb 22.5 33.7 14.0 1 Mar 22.9 33.7 55.6 5 Apr 22.7 32.5 154.3 10 May 21.6 30.9 235.5 14 Jun 20.1 29.4 88.3 10 Jul 19.3 28.7 71.8 10 Aug 19.3 28.8 68.2 8

6-14 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Minimum Temperature Maximum Monthly Rainfall Number of Rainy Month (deg. C) Temperature (deg. C) (mm) Days Sep 19.7 29.7 67.2 9 Oct 20.9 30.5 103.4 9 Nov 22.1 31.6 104.7 8 Dec 22.0 32.8 75.8 7 Average 893.9 7.8 Source: The Hong Kong Observatory based on data from Kenya Meteorological Department

Mombasa has a tropical wet and dry climate. The months with most rain are April-May and October-November, while in January-February, the rainfall is minimal. Mombasa's temperatures remain hot for most of the year.

The period from November/December to February is dominated by the northeast monsoon (Kazkazi) which is comparatively dry. During March and April, the monsoon winds start to blow in an east to southeasterly direction (Kuzi) which brings in streams of maritime air from the Indian Ocean bringing heavy rains. During the months of July to August, the southeast monsoon gradually sets in and the weather becomes more stable with more cloud and comparatively cooler temperatures. In November, the northeast monsoon gradually re-establishes and by December, the northern influence is dominant once again.

Table 6.3.11: Wind Force and Direction in 2013 Month Daily Wind Force (kph) Wind Direction Jan 14.7 N: 27%, NE: 37%, E: 25% Feb 14.2 N: 22%, NE: 37%, E: 37% Mar 11.8 E: 13%, SE: 29%, S: 32%, SW: 20% Apr 15.9 SE: 12%, S: 56%, SW: 29% May 15.8 S: 45%, SW: 45% Jun 14.9 S: 63%, SW: 31% Jul 15.0 SE: 11%, S: 56%, SW: 30% Aug 13.4 SE: 22%, S: 42%, SW: 34% Sep 14.4 SE: 33%, S: 44%, SW: 19% Oct 15.0 SE: 44%, S: 34%, SW: 17% Nov 10.2 NE: 11%, E: 16%, SE: 38%, S: 17%, SW: 20% Dec 12.1 N: 16%, NE: 40%, E: 26% Source: Weather Online Ltd. based on data from Kenya Meteorological Department (2) Drainage System

There are many hills and valleys in the SEZ area but there are no drainage facilities; not even major rivers and streams. Since the current geographic condition is mostly natural greenery and some farmland, part of the rainwater penetrates into the ground and the remainder flows over the ground surface. During heavy rain in the area, the rainwater will flow along existing valleys or natural channels downstream as shown in Figure 6.3.11. On the crossing of valley and road, there are a few culverts as shown in Figure 6.3.12. Flowing water was not found at the field during a sunny day. Figure 6.3.13 shows the current condition of drainage (existing bottom of valleys).

6-15 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Source: JICA Study Team Figure 6.3.11: Current Channel in the Field Figure 6.3.12: Current Culvert in the Field

Source: JICA Study Team Figure 6.3.13: Current Condition of Drainage (Existing Bottom of Valleys)

(3) Sewerage System

Mombasa Water Supply and Sanitation Co., Ltd. has the responsibility, among others, of sewerage services for the entire Mombasa County. The core functions of the Municipal

6-16 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Council include: 1) Operate and maintain sewers, manholes, pumps, and wastewater treatment plants (WWTPs) as listed below. Kipevu WWTP: located in Western Mainland; rehabilitated, fully operational. Kizingo WWTP: located in Mombasa Island; not fully operational. Pumping stations: eight units, consists of Miritini, Mikindani, Jomvu and Portreitz to discharge to the Kipevu WWTP, and Stations No. 1-4 to discharge to the Kizingo WWTP. However, all of these are out of order. 2) Other services offered include exhauster services, and superintending over new connection works. Exhauster services: KES 6,000 per 17,000 m3/day. Free sewer services: blockage removal, analysis in case of water contamination, free exhauster and sewerage services during the County Cleaning Exercise. There is no sewerage system in the SEZ area currently. The Waste Management Regulation Act (2006) and the Environmental Management for General Issues, and Coordination Regulations (Water Quality; 2006) shall be referred for the quality of water discharged into public sewers. The location of WWTP is shown in Figure 6.3.14.

Kizingo Sewerage Treatment Plant

Kipevu Sewerage Treatment Plant

Source: JICA Study Team Figure 6.3.14: Location of Existing WWTP

6.3.6 Existing Solid Waste Management

(1) Institutional Aspect Related to Solid Waste Management Sector

The National Environment Management Authority (NEMA) is responsible for the policy,

6-17 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report strategy, and planning of solid waste management in Kenya. Meanwhile, the environment department under Mombasa County is responsible for the management of solid waste collection, transport, disposal, and levy system in Mombasa.

(2) Present Condition of Solid Waste Management in the SEZ Area

In Mombasa County, the garbage collection area is divided into seven zones, namely: Tudor, Majengo, Old Town and New Town in Mombasa Island, and Mainland North, Mainland West, and Mainland South. The cleaning yard is located near the municipal fire station in Mombasa Island. Mombasa County has 46 units of long open trailer refuse truck. Garbage along the trunk road is collected every day and at other areas once or twice a week. The SEZ belongs to the Mainland South zone and garbage is collected once every two months at present. The following dumping sites are operated as shown in Figure 6.3.15. 1) Kibarani dumping site (25 acres in total) is located south of the Makupa Causeway in Mainland West. 2) Mwakirunge dumping site (50 acres in total) is located north, 16 km away from the New Nyali Bridge in Mainland North. The site will be improved with a sanitary landfill according to the Mombasa solid waste management master plan conducted by the French government and the Ministry of Local Government in 2006. 3) VOK Transfer Station is located south of the North Coast Road at Kisimani in Mainland North. 4) Shoda Quarry dumping site (25 acres in total) is located at Kaya Pungu near Shika Adabu in Mainland South. The site will be improved with a sanitary landfill according to the Mombasa solid waste management master plan. The Kibarani dumpsite, which is in operation for over 40 years, still receives trash from the municipal trucks even though the dumpsite has officially been relocated to Mwakirunge in 2002. The Kibarani dumpsite was supposedly relocated due to the potential health hazard it may pose and its location right next to the Makupa Causeway and Nairobi-Mombasa Railway. However, Kibarani is still heavily used by the county as it is only 5-10 minutes’ drive from the city centre and highly convenient compared with the Mwakirunge dumpsite which is located about 15 km from the city centre. At present, separate collection method is not adopted by Mombasa. However, plastics and PET bottles are recycled by scavengers at the dumping sites. Mombasa County does not operate any incinerator for reducing the weight of solid waste.

6-18 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

N N

Mwakirunge Dumping Site ⑥ ⑤ ① ② ③ ④

DK-SEZ

Kibarani Dumping Sit e ⑦

Garbage Collection Area ① Tudor ② Majengo ③ Old town ④ New town VOK Transfer Station Sh o da Quarry Dump in g Sit e ⑤ Mainland North ⑥ Mainland West ⑦ Mainland South 0 km 5 km

Source: JICA Study Team Figure 6.3.15: Location of Dumping Sites and Garbage Collection Area in Mombasa County

6.3.7 Existing Telecommunication System

(1) Infrastructure of Network System

There are four international internet submarine cables in Mombasa, Kenya as follows: - TEAMS cable (The East African Marine System): It connects with international cables in the United Arab Emirates (UAE) and has an overall capacity of 1,280 Gbps. - SEACOM cable: It has landing points along the East African coast and also has an overall capacity of 1,280 Gbps. - EASSY (The Eastern African Submarine Cable System): It runs up the East African coast and has a capacity of 4,720 Gbps. - LION 2: It connects Mombasa with the island states of Southern Africa and has an overall capacity of 1,280 Gbps. The infrastructure of network system in Kenya is shown in Figure 6.3.16.

6-19 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: African Undersea Cable (2015) Figure 6.3.16: Internet Submarine Cable System in Kenya

With reference to the quarterly sector statistics report by the Communications Commission of Kenya (CCK), the available bandwidth and bandwidth usage during the second quarter of 2013/14 are shown in Table 6.3.12.

6-20 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 6.3.12: International Internet Usage and Available Bandwidth International Leased Used Bandwidth Available Bandwidth Bandwidth (Mbps) (Mbps) SEACOM 578,400 TEAMS 119,970 365,330 EASSY 122,880 LION 2 40,960 VSAT 83.43 263.9 Total 365,413 862,473 Equivalent to 42.4% of Available Bandwidth Source: Communications Commission of Kenya (CCK) (2) Present Status of Telecommunication

Landline phone uses metallic cable as the transmission channel between the switch station and customer. Internet service uses metallic cable, optical fibre cable, and wireless LAN as transmission channels between the switch station and customer. Internet service in Mombasa is shown in Table 6.3.13. In case optical fibre cable is used, high-speed and high-reliability internet can be used.

Table 6.3.13: Internet Service in Kenya Item Description Remark 1. Wananchi Telecom Ltd (Zuku) Fibre Optic 1,000 kbps: KES 2,999 per month + KES 3999 Setup fee 10,000 kbps: KES 4,999 per month 20,000 kbps: KES 9,999 per month 2. Telkom Kenya Ltd (Orange) ADSL 256 kbps: KES 2,999 per month 512 kbps: KES 4,999 per month 1,000 kbps: KES 6,999 per month 2,000 kbps: KES 9,999 per month 3G Up to 21,000 kbps: KES 5,999 (for 15 GB bundle) 3. Safaricom 3G Up to 21,000 kbps: KES 11,499 (for 25 GB bundle) 4. Jamii Telecom Ltd (Faiba) Fibre Optic 3,000 kbps: KES 10,000 per month 6,000 kbps: KES 15,000 per month 9,000 kbps: KES 25,000 per month 12,000 kbps: KES 30,000 per month 15,000 kbps: KES 40,000 per month Source: JICA Study Team

6.4 Land Use of the Dongo Kundu Area

6.4.1 Analysis on Land Characteristics

(1) Analysis on Topographic Characteristics

The topography of the SEZ site is characterised by undulated hilly land with gentle to steep slopes. This will not be suitable for the development of large flat land as it would require high development cost due to the large volume of cutting and filling earthwork. Within the site, the area with comparatively flat topography, which is shown in yellow colour in Figure 6.4.1,

6-21 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report should mainly be developed, while the hilltop land shown in green and the valley bottom land shown in blue colour in Figure 6.4.1 will be potentially high development cost.

Comparatively flat land Hill top land Valley bottom land

Source: JICA Study Team Figure 6.4.1: Limited Possible Development Area

(2) Analysis of Environmental Issue

Three major potential environmental issues should be discussed for land use plan formulation, namely: 1) illegal settlers scattered in the SEZ site, 2) sacred place called Kaya1 respected by local communities, and 3) mangroves broadly found along the coast of the SEZ site. 1) Informal Settlers All the SEZ land belongs to Government. There are, however, existing structures including houses identified on site as well as by the satellite image as shown in Figure 6.4.2. The total number of structures identified by the JICA Study Team was 545 in total. Informal settlers reside in some of the structures. The total number of informal settlers within the SEZ site was 452 families according to a survey conducted by KPA in 2008. These residents need to be considered as project-affected people. 2) Kaya Five Kayas as shown in Figure 6.4.3 are recognised by a reconnaisance survey by the JICA Study Team in cooperation with KPA as well as local communities. These Kayas

1 Kaya: sacred place respected by local community. Any destruction caused by development cannot be allowed. Kaya actually refers to forest, woods, rocks, etc. There is a rumour that a farmer died one year after he encroached in Kaya site for farming. Kaya rocks placed on the beach are objects to pray to for safe fishing. Because of few encroachment of local people, untouched natural resources remain and diversified fauna and flora are preserved in Kaya forest and woods.

6-22 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report should be preserved as they are at present. 3) Mangrove Most parts of the northern coast of the SEZ are occupied by mangrove forest as shown in Figure 6.4.4. Elimination of a part of the mangrove is inevitable to develop port facility in the northern coast of the SEZ, although the environmental impact should be minimised.

Kaya Jiwelakutuza

Kaya Mihongani Kaya Gombeni

Kaya Kamtonguwe Kaya Mrongondoni

Note: One red colour dot accounts for a structure. Source: JICA Study Team Source: JICA Study Team Figure 6.4.2: Existing Structures Figure 6.4.3: Distribution of Kaya

Source: Distribution was identified on the basis of satellite photo. Details of mangrove distribution in the entire area are being studied by the JICA Study Team. Figure 6.4.4: Distribution of Mangroves in the Northern Coast of the SEZ

6-23 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 6.4.2 Relevant Development Projects

Several infrastructure development projects are ongoing within the SEZ site. The following harmonisation should be considered in the land use plan formulation:

- Mombasa Southern Bypass Road

The Mombasa Southern Bypass Road is designed to run through the centre of the SEZ site with a target completion in 2018. The road alignment of this road will be the given condition to the land use plan, since this road construction work already commenced.

- Liquefied Natural Gas (LNG) Storage, Re-gasification and Power Generation Plant

LNG storage, re-gasification, and power generation plant with the capacity of 700 MW is planned in the SEZ site. The power plant as well as high voltage transmission line will be constructed within the SEZ site. Total required area will be 120 ha (300 acres). The Ministry of Energy and Petroleum (MoEP) is in charge of the development of LNG storage, re-gasification and power generation plant under public-private partnership (PPP) scheme. Expression of interest (EOI) is in progress as of the writing of this report. Alternative Study of Power Plant Location With regard to the LNG storage, re-gasification and power generation project, MoEP considered the location of a jetty in their feasibility study report. The proposed location was in the middle of the Dongo Kudu’s prospective port area, and was not consider harmonization of overall future development plan and operation of the port and SEZ. The comparison study for the proposed site and a new alternative site was conducted to determine the possible location of the power plant. Due to the overall considerations as to the possible berth number, land utilisation and safety of operation, the alternative plan for the power plant was recommended, as shown in Table 6.4.1.

6-24 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 6.4.1: Land Use Alternatives Consideration Alternative Plan MoEP Plan Figure

Available 1,500 m 1,000 m Shoreline Possible Berth 4 berth 3 berth (@350 m) note: about 50 m will be offshore Number Land Utilisation Can utilise sharp gradient land for Will utilise flat land for 400 kV 400kV transmission line with 120m transmission line with 120m buffer, buffer, and utilize flat land for SEZ or and reduce the area of useful land for other purposes. SEZ and other purposes. Safety, in case Less affected area, since located in the May affect SEZ and navy site, since accident happens edge/seashore line. located in the border of both areas. Conclusion Recommended Not recommended Source: JICA Study Team

Considering the above mentioned reasons, the power plant area is proposed in the northwest corner of the SEZ.

6-25 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

CHAPTER 7 THE PROPOSED SEZ DEVELOPMENT PLAN

7.1 SEZ Development in Kenya

7.1.1 National Policy Context

The Special Economic Zone (SEZ) Development is a flagship project of Kenya Vision 2030. The Vision 2030 Second Medium Term Plan 2013-2017 (MTP2) lays out the specific objectives of SEZ development as follows: ･ Attraction of both local and foreign investments; ･ Expansion and diversification of production of goods and services for domestic and export markets; ･ Promotion of value addition; ･ Promotion of local entrepreneurship through small and medium enterprises (SMEs); ･ Enhancing technology development and innovation; and ･ Promotion of rural and regional industrialisation by exploiting comparative advantages of local resources.

The Government of Kenya aims to achieve above mentioned objectives through policy tools that are provided under the SEZ framework. Generally, within the SEZ, the tenants benefit from fiscal and non-fiscal incentives.

A Globally Competitive and Prosperous Kenya

Mombasa SEZ is a FLAGSHIP PROJECT

SEZ Tools Objectives

Fiscal Incentives Attracting Investments Tax Exemptions Expansion and Diversification (Corporate, Income, VAT..) of Production

Duty Free Trade Value Addition

Non-Fiscal Incentives Local Entrepreneurship One Stop Service Technology Development (Business License, Customs) Foreign Participation Innovation

Labour Flexibility Industrialization

Package Infrastructure Utilization Local Resources

Figure 7.1.1: Necessity of SEZ Development in Kenya

7.1.2 Strategy and Key to Success

The key to the success of the SEZ relies on how to make the SEZ more attractive for investors. Figure 7.1.2 lays out common factors for developing and operating a successful SEZ.

7-1 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Preferable location, regionally and globally competitive incentives, high standards of infrastructure suitable for business activities, capable and diligent labour force, appropriate marketing activities, and cost performance for business should be tailored so as to make the SEZ one of the most successful SEZs.

Physical land condition Necessary Considerations Accessibility to sea/air port Accessibility to raw materials/resources to Implement SEZ Accessibility to the market Living environment for the employee

Taxes Procedures Location Incentives Special rights Fees/Prices

On-site Power supply, Water supply, Sewerage, Drainage, etc. Key to Competitiveness of SEZ Off-site Infrastructure Marketing Markieting/Promotion strategy Power supply, Water source Governmental leads Telecommunication, Solid Success waste, etc. for Investment Attraction

Cost Land acquisition and compensation Fare Labor Force Procedures Quantity Performance Infrastructure services Quality/capability Construction works High Productivity Characteristics

Source: JICA Study Team Figure 7.1.2: Key Success Factors Location

In Kenya Vision 2030, the SEZ is considered to be established in Mombasa, Lamu, and Kisumu. Mombasa and Lamu are port cities facing the Indian Ocean, while Kisumu faces Lake Victoria.

Geographically, those 3 locations are located in the strategic area. However, considering the existing access to the infrastructure, transportation and market, only Mombasa has a potential to develop a SEZ in short stage.

Incentives

Provision of fiscal and non-fiscal incentives is described in Kenya Vision 2030 as a SEZ tools. Determination of specific kind and figures of the incentives is most important decision shall be made by the Government of Kenya (GOK) to attract an investor and accelerate the SEZ development. Fiscal incentive will be determined by National Treasury, and non-fiscal incentive will be determined by Ministry of Industrialization and Enterprise Development (MOIED) together with relevant authorities.

Marketing

Mombasa has a big advantage in marketing compared to other domestic and regional competitors as a gateway city with the largest port in the Eastern African region. Development concept of the Mombasa SEZ shall be determined to maximize this advantage and create the

7-2 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report better promotion and marketing impact. As a national flagship project, government needs to show strong commitment to realizing attractive incentives and timely implementation in order for investments to flow into the SEZ.

Cost Performance

The cost, including land price, construction, operation and maintenance, should be competitive. Added-on costs can be recovered by incentives to balance and/or bring advantages to the Mombasa SEZ. Since the land title of Mombasa SEZ development site belongs to the Government, incentive to the land price is under the control of the Government.

Labour Force

Labour force can be evaluated through quantity and quality. Kenyan has abundant labour force and the labour shows better productivities compared to the surrounding countries. As a national flagship project, SEZ will create more employment and bring large benefits to the national economy.

Infrastructure

Required infrastructure will not be limited to the on-site, but also to off-site. Road system should be well connected to surrounding urban economic functions, and water requires resources from neighbouring sources. Therefore, the balance and coordination between on-site and off-site shall be considered to create economic and project scale merit.

7.2 Conceptual Design of Mombasa SEZ at Dongo Kundu

7.2.1 Overall Goal

In the MTP2, the SEZ at Dongo Kundu in Mombasa was determined as a national flagship project, therefore it is necessary to consider the economic growth of the nation and benefits to the people of Kenya.

To achieve the specific objectives described in the Vision 2030, the overall goal of the SEZ development is set “to improve quality of life in Kenya” by creating job opportunities, bringing a variety of business opportunities, and improving living conditions, as illustrated in Figure 7.2.1.

To achieve the overall goal, the SEZ should become the economic engine in the region, a centre for diversification of existing industries, and become a regional hub for the logistics, information and human resources, and growth trigger base for the non-traditional industries and new domestic value-chain.

7-3 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

accrue socio-economic benefit by eco-friendly way - create more job opportunities - improve living condition - bring varies business chances - realize affluent life-style

Source: JICA Study Team Figure 7.2.1: Overall Goal of SEZ Development in Kenya

7.2.2 Specific SEZ Development Goals

Figure 7.2.2 shows specific development goal for the SEZ at Dongo Kundu in Mombasa with consideration of the area characteristics as a gateway to the Eastern African Community (EAC).

Accommodate Various Economic Activities

To create the centre of diversification, SEZ will accommodate various economic activities (e.g. manufacturing, logistics, commerce, services, etc) to create a synergy and new business opportunities.

Forward and Backward Linkages

As an economic growth trigger, SEZ will forward non-traditional businesses mainly promoted by FDI to the backward businesses consisted of local business societies by creating new domestic value-chain.

Creating Logistics HUB for the EAC and beyond

SEZ will bring incentives to import/export and transhipment businesses to develop as a regional gateway and become the logistics HUB.

Rapid Economic Growth

7-4 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report SEZ will contribute to the rapid economic growth of Mombasa which also becomes economic growth trigger of the region as well as nation by creating more job opportunities and utilizing of domestic resources.

Integrated and Efficient Logistics Services

Integrated and efficient logistics service will be achieved by establishing one-stop centre to create new business opportunities and value-chains for market expansion.

Engagement opportunity of Non-Traditional Industries

To promote the rise of non-traditional industries by increasing FDI, SEZ will prepare incentives and create world-class business environment for bringing and adopting new technologies.

Various economic activities will take place: manufacturing, logistics. commerce, services, etc. Forward and backward Business societies will linkages will be be engaged in established between non-traditional FDI and local business industries. Specific SEZ societies. Development Integrated and efficient Goals logistics services will Creating Logistics Hub be established for Mombasa SEZ will for EAC and Beyond contributing to the contribute to the rapid for import/export and regional and global economic growth of transshipment supply chain. Mombasa (then to nation- wide) through high value added industries and creating the job opportunities

Source: JICA Study Team Figure 7.2.2: Specific Development Goals of the SEZ

7.2.3 Development Concept

To maximize geographical advantages of Mombasa SEZ at Dongo Kundu and considering the development goal, the development concept of the SEZ is determined as a “Multifunctional Port Logistics based SEZ”, which consists of (i) port, (ii) free port/free trade zone, (iii) industrial park, (iv) meeting-incentives-conference-exhibition, and (v) residential functions.

In addition, an integrated infrastructure, including power supply, water supply, waste treatment and telecommunication, will be developed to attract investors both from domestic and foreign. Figure 7.2.3 illustrates the component ideas of the SEZ development.

7-5 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 7.2.3: Component of the SEZ Development

7.3 Land Use Plan

7.3.1 Land Use Function to be introduced in the SEZ

Considering that Mombasa Port is the principal international sea port servicing the cargo logistics for Kenya as well as the East African Community (EAC), land use for the logistics function in free trade zones should be fully introduced in the SEZ.

Land use function for International Education Medical Care Service manufacturing activity in Convention/Messe/MICE Multi Knowledge Base Industry Function industrial parks should be R&D High Tech - Manufacturing SEZ introduced in the SEZ to IT/Software Industry Tourism SEZ contribute to the promotion bounded of Kenyan manufacturing Trade/Logistic/Commerce area FTZ

industry. Manufacturing EPZ

Multi-function SEZ year 1960 1980 2000 2010 Source: JICA Study Team becomes the trend in the Figure 7.3.1: Multi-function Land Use in world, in which Jebel Ali Spear-heading SEZ in the World Free Zone Authority (JAFZA, UAE) as well as Incheon (South Korea) and East Coast Economic Region (ECER, Malaysia) show some best practices in the world. Many of these leading SEZs have evolved now to accommodate various functions such as tourism, recreation, meeting, incentive tour, convention, exhibition (MICE) business based tourism, and housing development in addition to manufacturing and logistics industry as shown in Figure 7.3.1. With reference to the above,

7-6 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report the SEZ is recommended to introduce multi-function land use.

It is also necessary to minimise the land reclamation works by balancing cut and fill works within each development phase’s area to keep the competitiveness in land prices compared to the rest of Mombasa industrial areas.

Land use for housing land will be secured for workers as well as informal settler’s resettlement. As well, conservation of Kayas should be considered for the purpose of environmental countermeasures.

Utility and facility such as wastewater treatment plant, power substation, and water supply facility necessary for industrial activity and residential purpose should be constructed in the land specifically reserved for utilities.

Planned component was considered based on the development concept and characteristics of the site and location as listed below. - Located in the sea logistics gateway of Kenya as well as East Africa; - Plenty of labour resources in the surrounding area; - Potential investment opportunity for liquefied natural gas (LNG) power generation and oil tank farms; - Close to international airport; - Undulated hilly land with gentle to steep slopes; the highest elevation is over 70 m while the lowest is 0 m (sea level); - Existence of swampy area along the coast; and - Currently no basic infrastructure.

The SEZ is thus planned to introduce the following land use functions: - Port - Freeport/ Free Trade Zone - Industrial Park - Residential Housing - MICE (meeting, incentives, conference and exhibition) - Enterprise area (land for development on demand) - Environmental reserve

7.3.2 Land Use Alternative

SEZ was introduced for Dongo Kundu area since 1970’s. Due to lack of accessibility, high development cost of undulated hilly land, and availability of developable land in the northern (city centre) side, the project was not realised in the past.

Today, land price, traffic congestions and limitation of developable land in the northern side bring up the development needs for Dongo Kundu. However, it is still necessary to consider

7-7 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report the development cost efficiency. Therefore, land use alternative study was conducted to balance the development cost and land area.

Table 7.3.1: Land Use Alternatives Alternative Development Land Area Alternative 1 Limited development land area to the reasonable site, such as flat land, (Figure 7.3.3) hilltop, to secure adequate construction cost. Alternative 2 Maximize development land area, and limits the location where may (Figure 7.3.4) create disaster, such as land slide. Source: JICA Study Team

Precondition of Land Use Plan

The SEZ boundary for the seashore was determined based on the land elevation of 10m. Therefore, proposed area for Power Plant in the northwest corner of the SEZ is shown as separated land in the land use plan.

Considering the average high tide level of 4.1 m, the land above 6 m can also be used by the power plant as shown in Figure 7.3.2 (gray coloured area). In this case, separated land in the land use plan will be connected by the

minimum land width of 48m, which is enough Source: JICA Study Team for the installation of road and utilities (fuel Figure 7.3.2: Expandable Part of Power Plant Area pipeline, power line, etc.).

Alternatives of Land Use Plan Based on the foregoing, two alternative land use plans for the overall SEZ development were considered as shown in Table 7.3.2, and illustrated in Figure 7.3.3 and Figure 7.3.4.

7-8 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.3.2: Comparison of Land Use Area between Alternative Plans (unit; ha) Alternative 1 Alternative 2 Difference 1Port 66 66 0 2 Free Port / Free Trade Zone A/B/C 122 183 61 3 Free Port / Free Trade Zone D 33 33 0 4 Industrial Parks 122 122 0 5 Mscellaneous Zone*1 73 73 0 6 Power Plant 120 120 0 7 Enterprise Area A/B/C 198 173 -25 8 Enterprise Area (Others) 129 127 -2 9 Residential Area A/B/C/D 29 29 0 *2 10 Infrastructure / Utility 40 40 0 11 Others (Reserve Area, etc.)*3 360 326 -34 TOTAL 1,292 1,292 *1 Residential Area, Tourism Parks, M ICE and Service Area *2 Road and utilities such as electrics substation, water reserve, etc (not including public drainage) *3 Including public drainage system and its buffer area Source: JICA Study Team

7-9 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source：JICA Study Team Figure 7.3.3: Land Use Plan of the SEZ (Alternative 1)

7-10 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source：JICA Study Team Figure 7.3.4: Land Use Plan of the SEZ (Alternative 2)

7-11 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report As a result, Alternative 2 was created 61ha more flat land for free port/free trade zone compared to Alternative 1.

Comparison of Earthworks Volume

Earthworks will be required to create flat land at undulated hilly area. An additional 2,963,000m3 earthworks was estimated to be required to create 61ha land, which is 4.86m3/m in average. This average figure is much higher than the average of Alternative 1 (1.44 m3/m).

Average earthworks volume of 8.09 m3/m for free port/free trade zone D is very high compared to both figures for zone A/B/C, since zone D is located at the seashore next to the port. This zone will be required for the industries which necessary to be located near the port, such as grain mill.

Table 7.3.3: Comparison of Earthworks Volume by Alternative Plans (unit: 1,000m3) Alternative 1 Alternative 2 difference 1 Port 2,280 2,280 0 2 Free port/Free trade zone A/B/C 1,755 4,718 2,963 3 Free port/Free trade zone D 2,669 2,669 0 4 Industrial parks 1,001 1,001 0 5 Natural gas power plant unknown* 6 Enterprise area unknown* Total 7,705 10,668 2,963 * Land formation plan and earth work plan will be made by respective company in charge, therefore earth volume can not identified presently. Source: JICA Study Team 7.3.3 Evaluation of Alternatives

Comparison analysis for the above alternatives is shown in the Table 7.3.4 below:

Table 7.3.4: Comparative Analysis of Land Use Alternatives Item Alternative 1 Alternative 2 Cost Suitable for current condition, considering Can be considered as a future plan, Performance the competitiveness between the land price when the land price in the northern side at northern side and development cost for is increase and expansion of the land in Dongo Kundu side. Dongo Kundu side is required. Earthworks Earthwork will create steps and slopes Since earth work volume is higher than within the development site, and Alternative 1, the slope will be higher Alternative 1 is planned to minimize and necessary to adopt the protection, earthworks volume and reduce the height such as retaining wall and cascade, of the slope to avoid land slide problem which will required more construction without special protection measurement. cost. Environmental Earthwork will be balanced within the site Necessary further consideration for Impact and limited an impact within the slope construction and protection development area. Orienting the mitigation methods to mitigate the environmental measure for environmental impact impact. following the SEA and planned EIA. Source：JICA Study Team

Alternative 1 is evaluated as the preferable plan while Alternative 2 is too aggressive considering current economic condition and cost impact for environmental mitigation.

7-12 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 7.3.4 Land Use Plan

Base on the Alternative 1, detailed land use plan was determined with consideration on the topographic and infrastructure alignments, such as road and drainage.

Table 7.3.5: Detailed Land Use Plan of Alternative() 1 (Recommended Land Use Plan) Land Use Item (ha) (acre) (%) 1 Port*1 66.5 164.3 5.2 2 Free port/Free trade zone A/B/C/2 121.6 300.5 9.4 3 Free port/Free trade zone D 33.2 82.1 2.5 4 Industrial parks*2 121.6 300.5 9.4 5 Miscellaneous zone*2 5.1 Residential area E 11.3 27.9 0.9 5.2 MICE area 2.2 5.4 0.2 5.3 Tourism parks 49.4 122.1 3.8 5.4 Service area 9.7 24.0 0.8 6 Power plant (Including transimission line area) 6.1 Plant area 64.0 158.2 4.9 6.2 Transmission line area 56.0 138.4 4.3 7 Enterprise area 7.1 Enterprise area A/B/C *3 198.5 491.0 15.4 7.2 Enterprise area (D~J) 129.3 319.1 10.0 8 Residetial area A/B/C/D 29.2 72.2 2.2 9 Infrastructure/utility 9.1 Internal arterial roads*4 22.0 54.4 1.7 9.2 Utility (SS, DC, utility area)*5 18.0 44.5 1.4 9.3 Main drainage network area 25.9 64.0 2.0 10 Kaya (reserved area) 24.0 59.3 1.9

11 Green, river/reserve area 309.6 765.1 24.0

Total project area including offshore land fill and 1,292 3,193 100 excluding Southern bypass road area*6 *1 Including offshore land fill 40 ha which is outside of original boundary *2 Internal road network of zone is inclusive. *3 Green belt with 50m - 100m width is inclusive. *4 Two arterial roads with 4.5km connecting port with bypass road and some boudary roads are included. *5 SS: Sub-Station, DC: Distribution Center (water) *6 Original area inside received boundary 1,286 ha, which includes Southern by pass area 34ha Source：JICA Study Team 7.3.5 Phasing Plan

Development phasing is set for three target years of 2018, 2025, and 2030 in consideration of the following conditions: 1) Target year of Phase 1 is set for 20181 when the Mombasa Southern Bypass road will be completed and the SEZ will be connected with external areas including the port and city of Mombasa through the road. 2) Target year of Phase 3 is set in 2030, following the National Development Vision 2030. 3) In between, 2025 is set as the target year of Phase 2.

1 2018 will be the beginning year of the next five year plan after the Five Year Plan from 2012 to 2017 while Medium Development Goal (MDG) is set in 2015.

7-13 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.3.6 and Figure 7.3.5 show the land use area and land use figure by phase.

Table 7.3.6: Land Use Plan by Phased Development (Unit: ha) Phase 1 Phase 2 Phase 3 Total (2018) (2025) (2030) 1 Port*1 0.0 34.2 32.3 66.5 2 Free port/Free trade zone A/B/C/2 67.3 9.0 45.3 121.6 3 Free port/Free trade zone D 0.0 10.2 23.0 33.2 4 Industrial parks*2 34.4 65.6 21.6 121.6 5 Miscellaneous zone*2 5.1 Residential area E 0.0 4.3 7.0 11.3 5.2 MICE area 0.0 2.2 0.0 2.2 5.3 Tourism parks 0.0 15.2 34.2 49.4 5.4 Service area 2.8 0.0 6.9 9.7 6 Power plant (Including transimission lin 120.0 0.0 0.0 120.0 7 Enterprise area 7.1 Enterprise area A/B/C *3 85.4 113.1 0.0 198.5 7.2 Enterprise area (D~J) 0.0 69.0 60.3 129.3 8 Residetial area A/B/C/D 29.2 0.0 0.0 29.2 9 Infrastructure/utility 9.1 Internal arterial roads*4 13.0 6.0 3.0 22.0 9.2 Utility (SS, DC, utility area)*5 18.0 0.0 0.0 18.0 9.3 Main drainage network area 18.6 1.7 5.6 25.9 Total Development Area 388.7 330.5 239.2 958.4 Note: Kaya (24ha), Mombasa southern bypass road (34ha) and green/reserve area (310ha) are exclusive.

Source：JICA Study Team

7-14 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 7.3.5: Land Use Plan by Phased Development

7-15 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 7.4 Development Framework

Following the phased development plan, the development framework for the SEZ is summarised in Table 7.4.1.

p Table 7.4.1: Development Framework for the SEZ Development area (ha) Unit number of Number of workers or population DK-SEZLand Land Use Use Zone Phase 1 Phase 2 Phase 3 Total workers or Phase 1 Phase 2 Phase 3 Total (2018) (2025) (2030) population per ha (2018) (2025) (2030) 1Port 0.0 34.2 32.3 66.5 - 500 500 1,000 2 Free port/Free trade zones A/B/C 67.3 9.0 45.3 121.6 50 3,400 500 2,200 6,100 2 Free port/Free trade zone D 0.0 10.2 23.0 33.2 -5050100 3 Industrial parks 34.4 65.6 21.6 121.6 100 3,400 6,500 2,200 12,100 4MICE area 0.0 2.2 0.0 2.2 300 0 600 0 600 5 Tourism parks 0.0 15.2 34.2 49.4 20 0 300 700 1,000 6 Service area 2.8 0.0 6.9 9.7 100 300 0 700 1,000 7 Power plant 64.0 0.0 0.0 64.0 10number of worker 60000600 8 Enterprise area (A/B/C) 85.4 113.1 0.0 198.5 10 900 1,100 0 2,000 9 Enterprise area (D~J) 0.0 69.0 60.3 129.3 20 0 1,400 1,200 2,600 Sub-total 253.9 318.5 223.6 796.0 Num. of workers in SEZ 8,600 10,950 7,550 27,100 10 Residential area E 0.0 4.3 7.0 11.3 120 0 500 800 1,300

11 Residential area A/B/C/D 29.2 0.0 0.0 29.2 -pop. 3,000003,000 Sub-total 29.2 4.3 7.0 40.5 Population in SEZ 3,000 500 800 4,300 12 Mombasa southern bypass road 34.0 0.0 0.0 34.0 13 Internal road network 13.0 6.0 3.0 22.0 14 Utility (SS, WWTP, utility area)/8 18.0 0.0 0.0 18.0 15 Main drainage network area 18.6 1.7 5.6 25.9 Sub-total 83.6 7.7 8.6 99.9 Total 366.7 330.5 239.2 936.4 Source: JICA Study Team

7.5 Infrastructure Development

7.5.1 Land Reclamation Plan

(1) Conditions for Land Reclamation

The preliminary calculation for earthwork volume is estimated by the following process: 1. Define the elevation levels in the multiple representative points according to the road alignment. 2. Define the land formation area based on the changing point of the planned road level. 3. Calculate the average elevation level of each land formation area based on the average road level. 4. Estimate the earthwork volume using the contour method, which is calculated from the vertical interval between the average elevation levels in the group of each land formation and the existing elevation level. 5. Calculate continuously from steps 1 to 4 mentioned above with the confirmation of the calculation result. The reference map for this calculation is the 2 m contour map. In the port zone, it is necessary to consider the effect of consolidation settlement, which is approximately 4 m.

(2) Remarks Related to Land Reclamation

- The topographic data in the sea is defined based on the bathymetric survey. - The amount of cutting is almost offset by the amount of the embankment. However, in the

7-16 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report port zone, freeport zone and service area, the amount of cutting and embankment could not be balanced. This is the reason why the elevation level cannot be adjusted. - LNG power plant, tourism park and enterprise area are not constructed. - Bulking factor of soil is not considered.

(3) Results of Preliminary Calculations

The calculation results in each zone are shown in Table 7.5.1. According to these results, the total volume of surplus soil is 60,000 m3, the cut-fill plan is shown in Figure 7.5.1.

Table 7.5.1: Cut-Fill Quantity CUT-FILL quantitiy(m3) item phase1 phase2 phase3 TOTAL Cut 4,005,000 3,474,000 823,000 8,302,000 Fill 2,444,000 1,928,000 1,173,000 5,545,000 Consolidation settlement fill 885,000 650,000 1,535,000 Replacement sand 590,000 574,000 1,164,000 Balance 86,000 322,000 -350,000 58,000 Waste soil 590,000 574,000 1,164,000 Source：JICA Study Team

7-17 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source：JICA Study Team Figure 7.5.1: Cut-Fill Plan

7-18 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 7.5.2 Road Network and Transportation Plan

(1) Traffic Demand Forecast

Future traffic can be categorised as commuter traffic and cargo traffic. Cargo Traffic

Based on the development area planned in the land use plan by zone of the SEZ, generation and attraction traffic of trucks are projected to be approximately 8,350, 18,110 and 28,860 pcu per day in 2018, 2025, and 2030, respectively, to/from the SEZ, as shown in Table 7.5.2.

Table 7.5.2: Projection of Generation/Attraction Number of Truck Traffic to/from the SEZ Cumulative development area (ha) Trip rate (generation Traffic Volume (trucks per day) pcu Traffic volume (pcu per day) DK-SEZLand Land Use Use Zone Phase 1 Phase 2 Phase 3 & attraction, Phase 1 Phase 2 Phase 3 conversion Phase 1 Phase 2 Phase 3 (2018) 2025 (2030) vehicle/day/ha) (2018) (2025) (2030) rate (2018) (2025) (2030) 1Port 0 34.2 66.5 - *1 0 1,100 2,200 0 3,850 7,700 2 Free port/Free trade zone A/B/C 67.3 76.3 121.6 25 *2 1,680 1,910 3,040 5,880 6,690 10,640 3.5 3 Free port/Free trade zone D 0 10.2 33.2 25 *2 0 260 830 0 910 2,910 4 Industrial parks 34.4 100 121.6 8 *2 280 800 970 980 2,800 3,400 5 MICE area 0 2.2 2.2 0 *3 0 0 0 0 0 0 6 Tourism parks 0 15.2 49.4 0 *3 0 0 0 0 0 0 7 Service area 2.8 2.8 9.7 0 *3 0 0 0 0 0 0 8 Power plant 64 64 64 0 *3 0 0 0 0 0 0 9 Enterprise area (A/B/C) 85.4 198.5 198.5 5.0 *4 427 993 993 1,490 3,470 3,470 10 Enterprise area (D~J) 0 69 129.3 1.6 *4 0 110 210 0 390 740 Total 2,387 5,173 8,243 8,350 18,110 28,860 Note *1 Container capacity of 450,000 TEU/year (container capacity) x90%(truck utilization efficiency) /365=1,100TEU/day/berth *2 Trip rate per hectare (generation a& attraction) of free port, free trade zone, industrial parks is assumed by referring Preparatory Survey on M ombasa City Road Development Project in The Republic of Kenya, Final Report, Nov. 2011, JICA/KATAHIRA & ENGINEERS INTERNATIONAL. *3 Cargo traffic to/from MICE area, tourism parks, service area and natural gas power plant is assumed almost zero. *4 Trip rate per hectare of enterprise area (priority) and (others) is assumed 20% of free trade zone and industrial park considering that land development efficiency is very low due to undulated topography of areas. Source：JICA Study Team

Commuter Traffic

Generation and attraction traffic by bus and passenger cars by zone and development phase are projected. Approximately 2,890 mini-buses and 3,600 passenger cars are projected in 2030, as shown in Table 7.5.3. Volume in pcu for mini-bus on the basis of a conversion factor of 2.0 will be approximately 5,780 pcu in 2030, as shown in Table 7.5.4.

7-19 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.5.3: Projection of Generation/Attraction Number of Mini-Buses and Passenger Cars to/from the SEZ Forecast of Commuting Traffic Volume Bus traffic volume Car traffic volume Number of workers Commuting trips Modal split generation/attraction generation/attraction (cars/day) (Cumulative) generation/attraction per day (buses/day) *6 *6 DK-SEZLand Land Use Use Zone Phase 1 Phase 2 Phase 3 Phase 1 Phase 2 Phase 3 Phase 1 Phase 2 Phase 3 Phase 1 Phase 2 Phase 3 Public Foot Car (%) (2018) (2025) (2030) (2018) (2025) (2030)bus (%) (%) (2018) (2025) (2030) (2018) (2025) (2030)

1 Port 0 500 1,000 0 1,000 2,000 80 10 10 0 50 110 0 70 130 2 Free port/Free trade zone A/B/C 3,400 3,900 6,100 6,800 7,800 12,200 80 10 10 360 420 650 450 520 810 3 Free port/Free trade zone D 0 50 100 0 100 200 80 10 10 0 10 10 0 10 10 4 Industrial parks 3,400 9,900 12,100 6,800 19,800 24,200 80 10 10 360 1,060 1,290 450 1,320 1,610 5 MICE area 0 600 600 0 1,200 1,200 80 10 10 0 60 60 0 80 80 6 Tourism parks 0 300 1,000 0 600 2,000 80 10 10 0 30 110 0 40 130 7 Service area 300 300 1,000 600 600 2,000 80 10 10 30 30 110 40 40 130 8 Power plant 600 600 600 1,200 1,200 1,200 80 10 10 60 60 60 80 80 80 9 Enterprise area (A/B/C) 900 2,000 2,000 1,800 4,000 4,000 80 10 10 100 210 210 120 270 270 10 Enterprise area (D~J) 0 1,400 2,600 0 2,800 5,200 80 10 10 0 150 280 0 190 350 Total 8,600 19,550 27,100 17,200 39,100 54,200 910 2,080 2,890 1,140 2,620 3,600 Note: *1 500 workers for port and 50 workers for free port are assumed. Trips number will be double of workers by generation and attraction. *2 Trip rate of industrial park, MICE, Tourism park, service area is based on JICA study of Thilawa SEZ.. *3 Trip rate of free trade zone is assumed as of 50% of industrial park. *4 Trip rate of natural gas power plant, enterprise area is assumed as of 10% of free trade zone. *5 It assumed that trips to/from residential area and resettlement area are inclusively counted in other zones. *6 Traffic volume is calculated by (trip generation/attraction x modal split)/average capacity of bus (micro bus) and passengers car are assumed to be 15 and 1.5 persons. *7 Commuting trips to/from residential area and community resettlement area are not counted to avoid duplication with trips above. Number of daily trips for shopping and school can be neglected because of less number (trip to/from schools to be built nearby the community resettlement area will be made on foot). Source：JICA Study Team

Table 7.5.4: Traffic Volume of Commuter Traffic (Converted to pcu) Bus traffic volume Total traffic volume Car traffic volume generation/attraction (pcu converted generation/attraction (bus + car, generation/attraction (cars/day) buses/day)*1 pcu/day) DK-SEZLand Land Use Use Zone Phase 1 Phase 2 Phase 3 Phase 1 Phase 2 Phase 3 Phase 1 Phase 2 Phase 3

(2018) (2025) (2030) (2018) (2025) (2030) (2018) (2025) (2030)

1 Port 0 100 220 0 70 130 0 170 350 2 Free port/Free trade zone A/B/C 720 840 1,300 450 520 810 1,170 1,360 2,110 3 Free port/Free trade zone D 0 20 20 0 10 10 0 30 30 4 Industrial parks 720 2,120 2,580 450 1,320 1,610 1,170 3,440 4,190 5 MICE area 0 120 120 0 80 80 0 200 200 6 Tourism parks 0 60 220 0 40 130 0 100 350 7 Service area 60 60 220 40 40 130 100 100 350 8 Power plant 120 120 120 80 80 80 200 200 200 9 Enterprise area (A/B/C) 200 420 420 120 270 270 320 690 690 10 Enterprise area (D~J) 0 300 560 0 190 350 0 490 910 Total 1,820 4,160 5,780 1,140 2,620 3,600 2,960 6,780 9,380 Note *1 Pcu conversion rate of micro bus is assumed 2.0. Source：JICA Study Team

Total Traffic Volume (Cargo Traffic and Commuter Traffic)

Total cargo and commuter traffic of the SEZ will be approximately 11,310, 24,890, and 38,240 pcu per day in 2018, 2025, and 2030, respectively as shown in Table 6.5.5.2

2 This projection coincides with generation and attraction traffic of 40,000 pcu per day at the full development stage of Mombasa SEZ projected by the “Preparatory Survey on Mombasa City Road Development Project in The Republic of Kenya, Final Report, Nov. 2011, JICA/KATAHIRA & ENGINEERS INTERNATIONAL”.

7-20 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.5.5: Projection of Traffic Volume for Cargo and Commuting Purpose Traffic Volume Projection (Cargo and commuting traffic total)

Total traffic volume Cargo traffic (pcu/day) Commuting traffic (pcu/day) generation/attraction (pcu/day) DK-SEZLand Land Use Use Zone Phase 1 Phase 2 Phase 3 Phase 1 Phase 2 Phase 3 Phase 1 Phase 2 Phase 3 (2018) (2025) (2030) (2018) (2025) (2030) (2018) (2025) (2030) 1Port 0 3,850 7,700 0 170 350 0 4,020 8,050 2 Free port/Free trade zone A/B/C 5,880 6,690 10,640 1,170 1,360 2,110 7,050 8,050 12,750 3 Free port/Free trade zone D 0 910 2,910 0 30 30 0 940 2,940 4 Industrial parks 980 2,800 3,400 1,170 3,440 4,190 2,150 6,240 7,590 5 MICE area 0 0 0 0 200 200 0 200 200 6 Tourism parks 0 0 0 0 100 350 0 100 350 7 Service area 0 0 0 100 100 350 100 100 350 8 Power plant 0 0 0 200 200 200 200 200 200 9 Enterprise area (A/B/C) 1,490 3,470 3,470 320 690 690 1,810 4,160 4,160 10 Enterprise area (D~J) 0 390 740 0 490 910 0 880 1,650 Total 8,350 18,110 28,860 2,960 6,780 9,380 11,310 24,890 38,240 Source：JICA Study Team (2) Transportation System Plan

Access Road to the SEZ

Mombasa Southern Bypass Road (MSBR) will be the sole access arterial from Mombasa City centre to the SEZ. MSBR, which is under detailed design stage by JICA cooperation, will be completed in 2018 as a two-lane divided highway.

Traffic volume capacity of two-lane divided highway is designed as 22,000 pcu per day as shown in Table 7.5.6. Thus, the MSBR can cope with the projected traffic of 11,310 pcu per day to/from the SEZ (Table 7.5.5) and through traffic of 9,000 pcu per day3 in 2018. Number of lanes is planned to be expanded to four lanes with capacity of 100,000 pcu per day in 2025 in order to accommodate the projected traffic of 25,140 and 38,240 pcu per day in 2025 and 2030, respectively as well as through traffic4.

3 Through traffic volume of 9,000 pcu per day is projected in “Preparatory Survey on Mombasa City Road Development Project in The Republic of Kenya, Final Report, Nov. 2011, JICA/KATAHIRA & ENGINEERS INTERNATIONAL”. 4 Through traffic volumes are projected to be 15,000 and 28,000 pcu per day in 2025 and 2035, respectively.

7-21 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.5.6: Traffic Volume Capacity by Road Type Free Flow Speed and Capacity by Road Type Lane Capacity Road Capacity Free Flow Road Number Carriageway Lateral Clearance Location (PCU/hr/ (PCU/day/ Speed Class of Lane oneway) bothway) (km/h) 6 Divided with soft shoulder Rural 2,500 150,000 80 6 Divided with soft shoulder Urban 2,500 105,000 60 6 Divided without soft shoulder Rural 2,500 129,000 80 6 Divided without soft shoulder Urban 2,500 90,000 60 4 Divided with soft shoulder Rural 2,500 100,000 80 4 Divided with soft shoulder Urban 2,500 70,000 60 4 Divided without soft shoulder Rural 2,500 86,000 80 4 Divided without soft shoulder Urban 2,500 60,000 60 A or B 2 Divided with soft shoulder Rural 1,100 22,000 80 2 Divided with soft shoulder Urban 1,100 15,000 60 2 Divided without soft shoulder Rural 1,100 19,000 80 2 Divided without soft shoulder Urban 1,100 13,000 60 2 Undivided with soft shoulder Rural 1,100 21,000 80 2 Undivided with soft shoulder Urban 1,100 14,000 60 2 Undivided without soft shoulder Rural 1,100 18,000 80 2 Undivided without soft shoulder Urban 1,100 12,000 60 6 Divided with soft shoulder Rural 2,500 135,000 60 6 Divided with soft shoulder Urban 2,500 105,000 40 6 Divided without soft shoulder Rural 2,500 116,000 60 6 Divided without soft shoulder Urban 2,500 90,000 40 4 Divided with soft shoulder Rural 2,500 90,000 60 4 Divided with soft shoulder Urban 2,500 70,000 40 4 Divided without soft shoulder Rural 2,500 77,000 60 C or 4 Divided without soft shoulder Urban 2,500 60,000 40 others 2 Divided with soft shoulder Rural 1,100 20,000 40 2 Divided with soft shoulder Urban 1,100 15,000 30 2 Divided without soft shoulder Rural 1,100 17,000 40 2 Divided without soft shoulder Urban 1,100 13,000 30 2 Undivided with soft shoulder Rural 1,100 16,000 40 2 Undivided with soft shoulder Urban 1,100 13,000 30 2 Undivided without soft shoulder Rural 1,100 14,000 40 2 Undivided without soft shoulder Urban 1,100 11,000 30 Note: Road Classification in Kenya is defined as follows: Class A as International Trunk Roads, Class B as National Trunk Roads, and Class C as Primary Roads Source: Preparatory Survey on M ombasa City Road Development Project in The Republic of Kenya, Final Report, Nov. 2011, JICA/KATAHIRA & ENGINEERS INTERNATIONAL Source：JICA Study Team

Internal Road System

Traffic flow and volume on the internal arterial road of the SEZ are projected in Figure 7.5.2.

7-22 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

(2018) Enterprise area (A) Service area 0/100 1,500/300

100 1,500 300 Power plant 6,000 Free port 0/400 /Free Trade zone B 1200 400 6,000/1,200

to/Mombasa Port 500pcu/day 9,000pcu/day (northern part), Nairobi to/Mombasa Port thru. A-109 Mombasa Southern Bypass Road Ferry thru. A-14 1,000400 800 2,200pcu/day

Industrial park 1,000/1200

Port 1 Free port 3,900/170 /FTZ D1 910/30

30 910

Enterprise area (2025) (A/B/C) Service area 0/100 3,500/700

3,500 100 700 Enterprise area 6,000 Power plant 200 Free port/FTZ B (D/E/F) 6,000/1,200 0/400 200/300 1,200 300 400 to/Mombasa Port 500pcu/day 2,400* 15,000cu/day 2,000* (northern part), Nairobi to/Mombasa Port thru. A-109 Mombasa Southern Bypass Road Ferry thru. A-14 900 1,700 1,800 5,100pcu/day

200 300 Enterprise area (Others) 200 200/200 Industrial park 2,800/3,500 MICE/Tourism park 0/300

(2030) Port Free port 7,700/400 /FTZ D 3,000/30 Service area 0/400

7,700 3,000 400 400 30 Free port/Free Free port/Free Enterprise area 4,300 Power plant trade zone A trade zone B 4,000* (A/B/C /D/E/F) 0/400 4,000/800 6,700/1,400 700 3,700/1000 2,700 1,400 400 1,600 5,600pcu/day 800 2,400* 20,030pcu/day to/Mombasa Port 1,800* (northern part), Nairobi to/Mombasa Port thru. A-109 Mombasa Southern Bypass Road 7,600pcu/day Ferry thru. A-14 1,600 2,100 2,100

600 600 Legend Enterprise area 600 (G/H/I) Industrial park 100 Cargo truck traffic flow volume (pcu/day) 600/600 3,400/4,200 100 Commuting car traffic flow volume (pcu/day) MICE/Tourism park 0/600

Free trade zone Land use zone Note: 4,000/800 /1 Figure in box with grey and yellow color shows traffic volume distributed on road network. Grey color is ca rgo tra ffic and yellow color is commuting tra ffic. Commuting car traffic generation 2 Figure of red color is estimated by accumulation of traffic volume of grey and yellow color box & attraction o volume (pcu/day) as the traffic volume projected on the arterial roads. Cargo truck traffic generation /3 Cargo traffic to/from IP, FTZ shown with * should be inclusively counted in cargo traffic volume & attraction volume (pcu/day) of port. /4 Cargo traffic generated/arrived to/from IP & FTZ is divided into two directions; one is to domestic/EAC direction transported through Mombasa bypass road and the other is import/export direction through the port. Sharing ratio to each direction is assumed 50% and 50% for IP and 40% and 60% for FTZ. Source：JICA Study Team Figure 7.5.2: Projection of Traffic Volume on Internal Arterial Road of the SEZ

7-23 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report As shown in Figure 7.5.2, traffic on the internal arterial roads of the SEZ will increase in accordance with the progress of the land use development. In 2018, maximum traffic of approximately 9,000 pcu per day is projected on the arterial main connecting Mombasa Southern Bypass Road and port area through the free trade zone and enterprise area (A/B/C). In 2025 and 2030, traffic on the same road will be 15,000 pcu per day and 20,030 pcu per day, respectively. Considering that 15,000 pcu per day is the capacity of two-lane roads (urban, divided carriageway with soft shoulder, Table 7.5.6), this internal arterial road should be designed as four-lane road.

On the other hand, the traffic in the other arterial roads will be less than the capacity of two-lane road of 15,000 pcu per day.

Considering the results of traffic projection, the following design criteria have been applied to define the internal road infrastructure of the SEZ: a) Basically, internal road should be two-lane road except for some arterial main road, in which the traffic volume projection exceeds 15,000 pcu per day. b) Arterial major road, in which the projected traffic volume exceeds 15, 000 pcu per day, should be four-lane road. It will function as the spinal road of the SEZ. Even in this case, two-lane road seems to cope with the traffic until 2018. c) Nevertheless, four-lane road is recommendable in some places of the arterial road of the SEZ for the purpose of enhancing attractiveness for investors as well as avoiding traffic congestion caused by sudden traffic concentration. Arterial major roads connecting the SEZ with MSBR as well as the entrance of each land use zone are recommendable to be four-lane roads. d) Various types of road will be designed in different land use zone to accommodate different traffic quality. Road in free trade zone and industrial parks will be designed with broad carriageway width while less width can be applied in tourism park, MICE, and residential area. In order to satisfy different functions, five types of road are designed as shown in Table 7.5.7. Location and cross section of each type of road are shown in Figure 7.5.3 to Figure 7.5.8. Table 7.5.7: Summary of Road Types Road Type Function Area Lanes ROW Hierarchy 1 Arterial main Spinal road of the SEZ connecting Mombasa International Port 4 32 m road with Mombasa Southern Bypass Road 2 Main road Entrance of free trade zone and industrial park 4 29.5 m 3 Sub-main road Auxiliary road in free trade zone and industrial park 2 21.0 m 4 Sub-main road Sub-main road of Mombasa SZE, but arterial road in tourism 2 20.0 m parks, MICE 5 Sub-main road Sub-main road of Mombasa SZE, but arterial road in residential 2 15.0 m area Source：JICA Study Team

7-24 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Mombasa SEZ Master Plan – Road

Arterial road Arterial main road Northwest(4-lane) Northeast(4-lane)

Main road (4-lane) in entrance of FTZ Main road (4-lane) in entrance of FTZ Auxiliary road (2-lane) in industrial park Sub-main road ) (2-lane) in FTZ Main road in Mombasa residential area Southern (2-lane) Bypass Road

Arterial road South Sub-main road (4-lane) as a public (2-lane) main road in in Industrial Industrial Park Park

Main road in tourism park (2-lane)

Source：JICA Study Team Figure 7.5.3: Road System Plan

7-25 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

2.5 1.5 3.5 3.5 1.5 3.5 3.5 1.5 2.5 11.75 11.75 23.5 32.0 m (ROW) Source：JICA Study Team Figure 7.5.4: Arterial Road connecting Port and Mombasa Southern Bypass Road

2.5 3.5 3.5 1.5 3.5 3.5 2.5 0.5 0.5 10.75 10.75

29.5m Source：JICA Study Team Figure 7.5.5: Main Road inside Free Trade Zone and Industrial Park

7-26 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

0.5 0.5 2.5 3.5 3.5 2.5 6.5 6.5 13.0m 21.0m Source：JICA Study Team Figure 7.5.6: Sub-main Road in Free Trade Zone and Industrial Park

0.5 0.5 0.5 0.5 2.5 3.0 3.0 2.5 2.0 2.5 2.5 2.0 6.0 6.0 5.0 5.0 12.0m 10.0m 20.0m 15.0m Source：JICA Study Team Source：JICA Study Team Figure 7.5.7: Main Road in Tourism Park Figure 7.5.8: Main Road in Residential Area

3) Connection to Southern Bypass Road

According to the Mombasa Southern Bypass Project, the bridge (flyover) of Dongo Kundu U-turn Bay is designed as two-lane (Figure 7.5.9) with single sidewalk (maximum traffic

7-27 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report volume capacity: 12,000 pcu per day). Considering that heavy traffic to the international port are mainly container trailers, it is recommended to arrange a four-lane flyover bridge to provide smooth traffic.

Moreover, additional U-turn bay will be necessary to smoothly connect the two parts of the SEZ which are separated by the bypass road, as shown in Figure 7.5.10.

On the other hand, Mkumbi U-turn Bay will be modified into a simple overpass bridge without access and/or connection to the bypass road in consideration of fewer traffic volumes on existing local road. Otherwise, the short distance between the new U-turn bay proposed by the JICA Study Team and the Mkumbi U-turn Bay may affect the traffic safety on the bypass road.

Source: JICA Mombasa Southern Bypass Project Figure 7.5.9: Cross Section of Flyover Bridge (U-turn Bay)

Dongo Kundo U-turn Bay

New proposed U-turn Bay

Fly over bridge (Mkumbi U-turn Bay)

Source: JICA Study Team Figure 7.5.10: Location of New U-turn Bay Inside Proposed by JICA-KEI

7-28 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 7.5.3 Port Facility Plan

(1) Method and Framework

KPA has revised its demand forecast three times in the last ten years. Specifically, the demand forecast was revised in the SAPROF of 2006, Review and Update of the Master Plan of 2009 (Review and Update of Port Master Plan Study of the Port of Mombasa including Development of Free Trade Zone), and the SAPROF Review of 2013. The forecast in the present report basically adopts the same method in the JICA Study of SAPROF for Mombasa Port Development (hereinafter called as SAPROF).

Flowchart of Demand Forecast

Flowchart of forecasting procedure for the port traffic forecast is shown in Figure 7.5.11.

National/Regional Development Plan

Socio-Economic Framework Macroscopic Estimation ･Population Microscopic Estimation ･General Cargo (ton) ･GDP (Kenya, its neighbouring countries) ･Each Commodity ･Production and Consumption Structure (Industry, Agriculture, etc.) 1. Review of Current Situation Review of Port Statistics 2. Determination of Future Review of Port Statistics Socio-Economic Framework

Analysis Analysis Analysis on Specific ･ Regression Analysis ･Regression Analysis Commodities by means of (Correlation Analysis) ･Time-series Analysis Interview Survey and Other Methods

Future Cargo Volume by Commodity Future General Cargo (ton)

Determination of Cargo Throughput at the Port

Convert to Analysis of Containerisation at the Port Container

Container Throughput at the Port

Source: SAPROF Figure 7.5.11: Flowchart of Demand Forecast

7-29 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Socio-Economic Framework

For this demand forecast, the same socio-economic framework used for the SAPROF was utilised to update the data. For the gross domestic product (GDP) of Kenya and Uganda, data from the IMF’s World Economic Outlook, April 2014 was used, and for the population, the United Nation’s World Population Prospects, 2012 Edition, Medium Variant Projection was used. Table 7.5.8 shows the major framework used for this work.

Table 7.5.8: Socio-Economic Framework in the SEZ Project Item Specified Figure Source GDP (Kenya) [%] 6.0 (2014-2018) IMF, World Economic Outlook 5.0 (2019-2024) Based on a prospect of Kenyan economy’s 4.0 (2025-2030) slowdown after 2018. Population (Kenya) 46,749 (2015) UN, World Population Prospect, The 2012 [1,000] 52,906 (2020) Edition, Medium Variant Projection. 59,386 (2025) 66,306 (2030) GDP (Uganda) [%] 6.0 (2013) IMF, World Economic Outlook 7.0 (2014-2018) Based on a prospect of Ugandan economy’s 6.0 (2019-2024) slowdown after 2018. 5.0 (2025-2030) Source：JICA Study Team

Microscopic Analysis

Cargo volumes by import and export commodities are analysed based on both time-series analysis and correlation analysis utilising the above-captioned framework. In the case where the actual traffic is increased based on time series, it is calculated based on correlation with GDP, but in the case where it is fluctuated greatly year by year, the average for the most recent five years is set as the annual quantity handled. The former group consists of commodities like iron and steel, motor/vehicle and lorry, wheat in bulk, and petroleum, oil and lubricants (POL) under import and others of general cargo under export. The latter group includes such commodities as chemical and insecticides, plastic, fertiliser, and other cereals in bulk under import and maize, fish and crustacean, and bunkers under export. Imported rice and sugar are obtained from the difference in the production and consumption in Kenya.

Macroscopic Analysis Macroscopic analysis is also conducted in the same manner as in the SAPROF. It is assumed at the outset that the volume of inbound container including empty container and the volume of outbound container including empty container should be the same because the Port of Mombasa is the only one international commercial port that handles all container traffic to and from its hinterland including Uganda, Burundi, Rwanda, South Sudan and Tanzania. The methodology of the macroscopic approach cited from SAPROF is as follows:

7-30 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Correlation analysis between the total imported general cargo in terms of weight (ton) and the aforementioned economic framework is conducted. This analysis reveals a strong correlation, and the general cargo volume can be projected by using a linear regression equation.  Containerisation ratio, unit weight of container, and TEU-BOX ratio by time-series approach are introduced to convert container weight to TEU and to identify the number of 40 ft and 20 ft boxes.  As for empty container ratio, coefficients of 0.02 for 40 ft and 0.01 for 20 ft were obtained through a time-series analysis.  As for transit cargoes, imported/transit cargo volume in TEU and GDP of Uganda shows a strong correlation, and exported/transit cargo volume in TEU is almost equivalent to 22% of the total exported cargo volume in TEU. Based on these, transit imported/exported cargos in TEU are projected.  As for domestic cargoes, estimate is made by subtracting the transit cargo volumes from the total figures of each import and export.  KPA encourages the further increase of transhipment traffic through the port, thus the growth rate of transhipment traffic is set as 50% higher than that of the average container.  Referred containers were not considered in this study due to the lack of actual data through the port.

Results by Microscopic Approach

The results by microscopic approach are shown in Table 7.5.9 below.

Table 7.5.9: Future Demand of General Cargo (Unit: 1,000 tons) 2013 2018 2020 2025 2030 Micro (Import/General Cargo) 8,403 14,683 15,689 21,446 27,359 Index (Figure as of 2013 is 1.0) 1.00 1.60 1.87 2.55 3.26 Micro (Export/General Cargo) 2,068 3,229 3,352 4,315 5,277 Index (Figure as of 2013 is 1.0) 1.00 1.48 1.62 2.09 2,55 Source: JICA Study Team Results by Macroscopic Approach

Table 7.5.10 shows the estimated volume of full (loaded) container, and Table 7.5.11 shows the total container demand through the Port of Mombasa.

Table 7.5.10: Full (Loaded) Container Demand (Unit: 1,000 TEUs) 2013 2018 2020 2025 2030 Macro (Import/Container, full) 441.1 838.6 875.9 1,227.7 1,600.8 Index (Figure as of 2013 is 1.0) 1.00 1.70 1.99 2.78 3.63 Macro (Export/Container, full) 129.6 234.9 225.9 295.8 368.2 Index (Figure as of 2013 is 1.0) 1.00 1.65 1.74 2.28 2,84 Source: JICA Study Team

7-31 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.5.11: Total Container Demand (Unit: 1,000 TEUs) 2013 2015 2020 2025 2030 Mombasa SEZ Project 1,171.9 1,821.5 2,563.6 3,354.9 SAPROF Forecast 987.1 1,213.7 1,877.5 2,634.2 3,441.6 Actual 894.0 Source: JICA Study Team (5) Cargo from/to the SEZ

The JICA Study Team estimated the cargo volumes exported and imported annually from and to the SEZ as approximately 400,000 TEUs. This is calculated as the cargo volume in the final phase, premised on companies being located on 70% of the usable areas of the free trade zone and industrial zone. Basically, it is premised on companies located on the SEZ importing raw materials and exporting products. With regard to exports, it was assumed that the ratio is 7:3 at the maximum because not only sea route but also land route area will be used.

(6) Port Development Plan

Basic Layout Plan

The new terminal should have sufficient space for storing containers, other general and bulk cargoes inside the terminal. The new terminal in the Dongo Kundu area will handle at least the exported or imported cargoes to be generated by the activities in the SEZ, most of which are containerised, and are projected to be approximately 400,000 TEUs in Phase 3 (2030).

The location of the new port terminal at the Dongo Kundu area has been determined in consideration of securing a maximum length of quay walls, easiness to approach the existing channel, and sufficient space for stocking containers and general cargoes behind, as shown in Figure 7.5.12.

Excavated materials to be generated in the course of the development of SEZ will be effectively utilised for reclamation to secure sufficient storage space for containers and general cargoes in the terminal. Dredging will be required for the approach channel and turning basin to reach the new berths.

7-32 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team based on information gathered Figure 7.5.12: Layout of the New Terminal

Capacity of the New Port Terminal

Terminal capacity is principally determined and dominated by either yard capacity or quayside operational capacity that is controlled by cargo handling productivity. Yard capacity is calculated by the figures of ground slots, average container stacking heights, and dwell time with consideration of efficiency coefficients for container terminals. On the other hand, the quayside operational capacity is controlled by berth occupancy ratio, installed number of quayside gantry cranes, and equipment productivity expressed by how many container boxes can be handled per hour. Dwell time is defined as the number of days that containers stay inside the yard. Reducing the number of dwell time may have great impact on enhancing the terminal capacity.

The capacity of the new terminal for the Dongo Kundu area will be determined by the quayside operational capacity and it can be estimated based on the productivity of quayside gantry cranes and ship conditions as assumed below.

 Maximum berth occupancy rate is 55% for liner container ships as a common user container terminal. This berth occupancy rate is considered to be a realistic rate to design public common user container terminals and increasing the occupancy rate will create a high risk for terminal congestion.  Calling ships are of post-Panamax type.  Working conditions are 363 days a year and 24 hours a day with three shifts for both ship and container yard gate operations.  Net working hour ratio against gross working hour is 83.3%.  Ships stevedoring productivity is 30.0 moves/hour/crane (net) or 25.0 moves/hour/crane (gross).

7-33 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report  Effective utilisation factors of installing STS: - 1st crane/berth: 100% - 2nd crane/berth: 85% - 3rd crane/berth: 65% - 4th crane/berth: 40%  TEU/Box ratio is 1.37 as of 2013. Hence, the terminal capacity is calculated at 470,000 TEU/year/berth.

Dredging

Dredging was carried out in 2011 and 2012 by KPA’s own fund to deepen the existing channel and basin for the succeeding Second Container Terminal. Soft material was dredged with a trailer suction hopper dredger and the dredged material was disposed of at the designated offshore area while suitable material for reclamation was utilised for the Second Container Terminal area. A cutter suction pump dredger was employed for dredging hard material. Figure 7.5.13 shows the dredging areas and dredged material disposal sites.

Source: Completion Report May 2012 Dredging and Hydrographic Works at Port of Mombasa Figure 7.5.13: Dredging Area and Dredged Material Disposal Sites

When port facilities will be constructed at the Dongo Kundu area, dredging for the approach channel and turning basin will be required to secure sufficient water depths for vessels that are expected to call at the new berths. The types of vessels include general cargo ships, bulk cargo

7-34 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report ships, container ships and pure car carriers (PCCs). Considering the present and future trend of the full container ship size, the new berths should have a water depth of -15.0 m, which is equal to the ongoing Phase 1 construction work for the Second Container Terminal.

Dredging will be carried out phase-wise in accordance with the port development at Dongo Kundu. The turning basin will be a circle with a diameter of 600 m, which is equal to two times of the design vessel as shown in Figure 7.5.14 and Figure 7.5.15 for 1st Berth (namely D1) and 2nd Berth (namely D2), respectively.

Port 1 Port 2 Port 1 D1 D2 D1

Source: JICA Study Team Source: JICA Study Team Figure 7.5.14: Dredging Area for Berth D1 Figure 7.5.15: Dredging Area for Berth D2

Subject to the type of soil to be dredged, the dredger would be of a suction type for most seabed material at this area. If dredged material is considered suitable as reclamation material, it can be used for reclamation; otherwise, it will be disposed of at the offshore area where sufficient depths are provided.

Reclamation

As the Dongo Kundu area is characterised by hilly land, the soil materials to be excavated in the course of the SEZ development will generate a huge quantity of excavated soil. It will be effectively utilised for port reclamation in order to form a container yard and space for general cargoes and necessary building facilities.

Port Facilities

Table 7.5.12 and Table 7.5.13 describe the port facilities at the new terminal in the Dongo Kundu area for D1 and D2, respectively, taking into account the port facilities for Phase 1 of

7-35 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report the Second Container Terminal. Administration building to be constructed for D1 can be used for next expansion project as well.

Table 7.5.12: Port Facilities for D1 Item Quantity Unit Remark 1. Dredging 3,906,000 m3 For channel and turning basin 2. Reclamation 1,200,000 m3 Soil improvement needed 3. Berth D1 300 m Steel pile foundation (-15.0 m) 4. Revetment 1,350 m Rubble type 5. Yard 285,000 m2 ICB 6. Buildings 1 LS 7. Security 1 LS 8. ICT 1 LS Source: JICA Study Team

Table 7.5.13: Port Facilities for D2 Item Quantity Unit Remark 1. Dredging 3,216,000 m3 For channel and turning basin 2. Reclamation 950,000 m3 Soil improvement needed 3. Berth D2 300 m Steel pile foundation (-15.0 m) 4. Revetment 400 m Rubble type 5. Yard 285,000 m2 ICB 6. Buildings 1 LS 7. Security 1 LS 8. ICT 1 LS Source: JICA Study Team

Wharf The new wharf in the Dongo Kundu area will also handle containers to be generated by the activities of the SEZ and other general cargoes, most of which are assumed to be vehicles. The new wharf will have a structure to support the quayside gantry cranes (post-Panamax type) that are equal to those which will be installed for Phase 1 of the Second Container Terminal. Figure 7.5.16 shows the typical cross section of the new wharf. As not sufficient geotechnical investigations have been carried out for that area, the structure is still provisional. Also, a water depth of -15.0 m will be secured considering the current trend of container ships worldwide; however, it is possible to dredge shallower than -15.0 m at first and then deepen down to -15.0 m afterward because the structure itself can be designed for such a deep depth from the beginning.

7-36 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 7.5.16: Typical Cross Section for New Wharf Yard The yard behind the new wharf will be used for stocking containers and general cargoes. As the cargo handling equipment, i.e., rubber-tyred gantry cranes, reach stackers, forklifts, and chassis, will move inside the terminal, the pavement type of interlocking concrete blocks will be adopted for easy maintenance. The lanes for the rubber-tyred gantry cranes will be designated and the pavement type (Type-1 below) for them will be different from other areas.

Source: JICA Study Team Figure 7.5.17: Typical Cross Section for Interlocking Concrete Block Pavement

Cargo Handling Equipment In principle, cargo handling equipment for container terminal includes ship-to-shore gantry cranes, harbour cranes, rubber-tyred gantry cranes, reach stackers, forklifts, top-lifters, and chassis. On the other hands, un-loaders and belt conveyor system will be installed for dry bulk cargo handling. Such equipment can be procured by a terminal operator if the new terminal is operated by a private terminal operator. Figure 7.5.18 and Figure 7.5.19 show a typical post-Panamax type ship-to-shore gantry crane and a rubber-tyred gantry crane for container handling, respectively.

7-37 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: KPA (Phase 1 of Second Container Terminal) Figure 7.5.18: Ship-to-Shore Gantry Crane

Source: KPA (Phase 1 of Second Container Terminal) Figure 7.5.19: Rubber-tyred Gantry Crane

7.5.4 Power Supply System Plan

When power supply is requested by a private company (i.e., factory), power supply facilities (i.e., transmission lines, substation, and distribution lines) shall be constructed by SEZ and shall be connected through 33 kV distribution line to the tenants.

(1) Design Concept and Standard

Design concept of power supply system in the SEZ is as follows:

7-38 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report - The power supply facilities shall be constructed in the initial stage to provide sufficient power supply to tenants.

- The power supply system shall be highly reliable and flexible at the time of extension.

- Construction cost shall be reduced as much as possible.

Application Code and Standard

The design, specification, installation test, and inspection of all electrical equipment shall comply with the current editions of the following publications and any supplements thereto:

- International Electro-technical Commission (IEC)

- Kenya Power and Lighting Company Limited (KPLC) Technical Standard

- Kenya Electricity Generation Company (KenGen) Technical Standard

- Kenya Grid Code

- Japanese Industrial Standards (JIS)

- Other local electrical rules and regulations

Voltage of Power Supply System

The system voltages applied to the transmission line, substation, and distribution line following IEC standard steady state root mean square value of voltage at a customer’s point of supply, with tolerance limits as indicated, are as follows:

- 66 kV ± 10%, three phase circuit, and 50 Hz - 33 kV ± 10%, three phase circuit, and 50 Hz - 11 kV ± 6%, three phase circuit, and 50 Hz (for long 11 kV feeders, a tolerance level of ± 10% is allowable) - 230/400 V ± 6%

N-1 Contingency Criteria Power supply facilities for the SEZ shall maintain N-1 redundancy for all transmission, generation, and major distribution components. The N-1 criteria require that all loads can be restored if any single component fails.

Fault Levels The minimum design short circuit ratings for the distribution network in Kenya are given as follows: - 25.0 kA (2,900 MVA) for 66 kV - 31.5 kA (1,800 MVA) for 33 kV - 25.0 kA (350 MVA) for 11 kV

7-39 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (2) Power Demand Forecast

Power demand in the SEZ was forecasted based on its sales plan and the existing capacity of industrial parks in the surrounding countries. Demand forecast is shown in Table 7.5.14.

Table 7.5.14: Power Demand Forecast of the SEZ Unit Development Area (ha) Power Power Demand (kVA) Demand Land Use Zone Phase 1 Phase 2 Phase 3 Phase 1 Phase 2 Phase 3 Total kVA/ha Total (2018) (2025) (2030) (2018) (2025) (2030)

1 Port 0.0 66.5 0.0 66.5 173 0 11,505 0 11,505 2 Freeport/Free trade zone 67.3 9.0 45.3 121.6 140 9,422 1,260 6,342 17,024 A/B/C 3 Freeport/Free trade zone D 0.0 10.2 23.0 33.2 114 0 1,163 2,622 3,785 3 Industrial park 34.4 65.6 21.6 121.6 400 13,760 26,240 8,640 48,640 4 MICE area 0.0 2.2 0.0 2.2 140 0 308 0 308 5 Tourism parks 0.0 15.2 34.2 49.4 14 0 213 479 692 6 Service area 2.8 0.0 6.9 9.7 100 280 0 690 970 7 Power plant 64.0 0.0 0.0 64.0 0 0 0 0 0 9 Transmission line 56.0 0.0 0.0 56.0 0 0 0 0 0 10 Enterprise area (A/B/C) 85.4 113.1 0.0 198.5 140 11,956 15,834 0 27,790 11 Enterprise area (D~J) 0.0 69.0 60.3 129.3 140 0 9,660 8,442 18,102 Subtotal 309.9 350.8 191.3 852.0 35,418 66,182 27,215 128,815 12 Residential area E 0.0 4.3 7.0 11.3 105 0 452 735 1,187 13 Residential area A/B/C/D 29.2 0.0 0.0 29.2 105 3,066 0 0 3,066 Subtotal 29.2 4.3 7.0 40.5 3,066 452 735 4,253 14 Mombasa Southern Bypass 34.0 0.0 0.0 34.0 Road 15 Internal arterial road/1 13.0 6.0 3.0 22.0 30 390 180 90 660 16 Utility (SS, DC, utility area) 18.0 0.0 0.0 18.0 30 540 0 0 540 17 Main drainage network area 18.6 1.7 5.6 25.9 Subtotal 83.6 7.7 8.6 99.9 930 180 90 1,200 Total 422.7 390 200 987 39,414 66,814 28,040 134,267 Total Power Demand in MVA (rounded) 40 67 28 135 Source: JICA Study Team

As a result of the calculation, the required total power demand for the SEZ is estimated at 135 MVA and the power demand of Phase 1 (2018) is 40 MVA.

(3) Power Supply Source

Transmission Line Plan

KenGen plans to build a power plant with capacity up to 700 MW, which will transmit natural gas situated nearby to the LNG terminal at the SEZ. At that time, transmission line nearby the SEZ will be as shown in Figure 7.5.21.

7-40 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

KIAMBERE S/S RABAI S/S KIPEVU S/S

KAMBURU S/S 1x90 MVA 7x13.57 MW 220 kV 220 kV 132/220 kV 132 kV 6x14.4 MW 33 kV

2x72 MW 2x87.5 MVA 2x90 MVA 2x45 MVA 11/235 kV 220/132/11 kV 132/33 kV

NAIROBI-MOBASA 132 kV 2x60+1x30 MVA 400 kV 220 kV 400 kV 132/33 kV 800 MVA

MARIAKANI S/S 2x23 MVA 132/33 kV

Legend Future

GALU open open

400 kV

1x7.5 MVA 1x7.5 MVA 1x23 MVA 2x7.5 MVA 2x23 MVA 33/11 kV 33/11 kV 33/11 kV 33/11 kV 33/11 kV

MSAMBWENI MWABUNGO DIANI LICONI MBARAKI

LNG PP 11kV OHL 700 MW TO DK-SEZ Source: JICA Study Team Figure 7.5.20: Power Supply System in the SEZ with LNG Power Plant

Considering total capacity requirement of the SEZ is 134 MVA, the LNG power plant can supply through the following options:

- The SEZ will be supplied by generator feeder at 11 kV side of LNG power plant. This has an advantage because the SEZ will not need to install transmission substation. However, this was not recommended, due to faults on the distribution system end may strain the generator and at times may cause trips of the generator, and therefore cause much larger loss of supply, which is not acceptable.

- The SEZ will be supplied by installing one substation which will be connected to the 400 kV outgoing transmission line from the LNG power plant to the future Mariakani Substation.

Based on the feasibility study by KenGen, the LNG power plant will be completed in 2015. However, in the meeting with the JICA Study Team, the Mombasa City County said that the LNG power plant will not be ready in 2018. Moreover, the LNG power plant will not supply the SEZ in Phase 1 (2018) with the power demand of 40 MVA.

With the above information, the power sources around the SEZ area is shown in Table 7.5.15.

7-41 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.5.15: Power Sources for the Surrounding Area of the SEZ Name of Substation Description Remark 1. Rabai Substation Transformer 1 : 2 x 90 MVA Sufficient for power demand of Future Trans. : 1 x 90 MVA Phase 1 and total demand as : 220/132/11 kV well. Peak Demand : 87 MW (50%) Transformer 2 : 2 x 45 MVA 132/33 kV Peak Demand : 23 MW (25%) 2. Kipevu Substation Generator : 7 x 13.57 MW : 6 x 14.4 MW Transformer : 2x60 + 1x30 MVA Peak Demand : 150 MW Peak Demand : 100% 3. Galu Substation Transformer : 2 x 23 MVA 132/33 kV Peak Demand : 23 MW (50%) 4. Mbaraki Substation Transformer : 2 x 23 MVA Insufficient capacity for 33/11 kV Peak Demand : 32 MW (70%) power demand of 5. Likoni Substation Transformer : 2 x 7.5 MVA Phase 1 (2018) 33/11 kV Peak Demand : 7.5 MW (50%) 6. Diani Transformer : 1 x 23 MVA 33/11 kV Peak Demand : 18 MW (79%) 7. Mwabungo Transformer : 1 x 7.5 MVA 33/11 kV Peak Demand : 2.3 MW (31%) 8. Msambwenni Transformer : 1 x 7.5 MVA 33/11 kV Peak Demand : 1.5 MW (20%) 9. LNG Power Plant Capacity : 700 MW Not ready in 2018 11/400 kV Source: Kenya Power & Lighting Company Ltd. (KPLC)

Currently, Rabai Substation has two 90 MVA-220/132 kV transformers with maximum demand of 87 MW (equivalent to 50% of installed capacity). In the future, Rabai Substation will be installed with an additional 90 MVA-220/132 kV transformer. The total installed capacity after installing the new transformer is 270 MVA. According to the above table, only Rabai Substation has sufficient capacity to supply the SEZ in Phase 1 (2018) with power demand of 40 MVA, as well as for all the three phases with a total power demand of 135 MVA.

There are existing 40 kV and 132 kV single circuit lines from Rabai Substation to 33/11 kV Likoni Substation and 132/33 kV Galu Substation. Since the existing lines have already been used to provide public power supply, a new transmission line directly connecting Rabai Substation to the SEZ is needed in order to avoid any interruption in the power supply to the affected public network. This new line is recommended to be designed as a double circuit in order to provide the SEZ with stable power supply under N-1 condition to guarantee at least one circuit operation at all times.

The 132 kV double circuits from Rabai Substation will be used to feed 135 MVA to the SEZ, as indicated in Figure 7.5.21.

7-42 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 7.5.21: Power Transmission Line from Rabai Substation to the SEZ Substation

With confirmation from Kenya Power, the 132 kV transmission line from Rabai Substation to the SEZ Substation will run parallel to the existing transmission line from Rabai Substation to Galu Substation. The length of the 132 kV transmission line for the SEZ is approximately 26.5 km.

(4) Proposed Power Supply System

Substation Plan

The 132/33 kV the SEZ Substation will be constructed near the LNG power plant, and will be equipped with three 75 MVA main transformers and a 132 kV double circuit transmission line bay for receiving power from Rabai Substation.

7-43 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report The switchgear for the primary circuit of the SEZ Substation is recommended to be an air-insulated switchgear (AIS) in accordance with Kenya Power’s existing substations in Kenya. The 33kV GIS switchboards will be installed to supply power to the tenants.

The main transformers will comprise three units of 75 MVA transformers in consideration of N-1 contingency condition, based on the total power demand of 134 MVA. In Phase 1 (2018), two 75 MVA transformers will be installed and the last 75 MVA transformer will be installed in Phase 3 (2030). The single line diagram is shown in Figures 7.5.22 for reference.

Metering Bay managed by Kenya Power

From RABAI S/S From RABAI S/S Circuit 1 Circuit 2

LA LA

CVT CVT

DS/ES DS/ES

CT CT CB CB CVT

DS DS DS DS 132 kV Main Bus Bar

132 kV Reserve Bus Bar

DS DS DS DS DS DS CVT CB CB CB CT CT CT LA: Lightning Arrester DS DS CVT: Capacitive Voltage Trans. DS LA LA DS/ES: Disconnector Swith LA with Earthing Switch Main Transformer 1 Main Transformer 2 CT: Current Transformer Main Transformer 3 132/33 kV 132/33 kV 132/33 kV DS: Disconnector Switch 75 MVA 75 MVA 75 MVA VT: Voltage Transformer LA LA FU: Fuse LA VT Auxiliary Transformer VT Fn: Outgoing Feeder VT 33/0.415 kV DS 100 kVA DS DS

CT FU CT CT DS DS DS DS

DS DS DS DS DS DS DS DS DS DS DS DS DS DS DS DS DS CB CB CB CB CB CB CB CB CB CB CB CB CB CB CB CB CB DS DS DS DS DS DS DS DS DS DS DS DS DS DS DS DS DS

LA LA LA LA LA LA LA LA LA LA LA LA LA LA LA

F1 F2 F3 F4 F5 F6 F7 F8 F9 F10 F11 F12 F13 F14 F15 (Spare) (Spare) (Spare) Source: JICA Study Team Figure 7.5.22: Single Diagram of Substation

33 kV Distribution Line Plan  Method of Laying 33 kV Distribution Line There are two methods of supplying power to tenants, namely, overhead distribution system and underground distribution system.  Overhead Distribution System

7-44 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report The overhead distribution system is capable to supply power directly from all over the 33 kV overhead lines. The workability and expandability of the overhead distribution system are better as the SEZ will no longer need a 33 kV switchgear. In addition, the overhead distribution system using double circuit is advantageous because in case one circuit fails, the other circuit can still supply power to the load in consideration of N-1 contingency condition. The single line diagram is shown in Figures 7.5.23 for reference. Legend DK-SEZ Infrastructure Tenants' equipments

33 KV OHL

DOUBLE CIRCUIT

TR.1 TR.2 TR.3 SPARE

DK-SEZ SUBSTATION TENANT 1 TENANT 2 TENANT 3 TENANT 4 TENANT 5 TENANT 6 Source: JICA Study Team Figure 7.5.23: 33 kV Overhead Distribution System

 Underground Distribution System

Reliability and landscape of this method are better compared with the overhead distribution line. However, in order to supply power to tenants with 33 kV line, it is necessary to install a ring main unit (RMU) consisting of a 33 kV switchgear panel. The price per unit is approximately USD 70,000. The RMU will be installed at boundary lines during the initial stage and if a tenant purchases many lots, several RMUs may be useless. In addition, the installation cost for underground lines is five times higher than that for overhead lines.

Legend DK-SEZ Infrastructure Tenants' equipments 33 KV Underground cable

RMU RMU RMU RMU RMU RMU TR.1 TR.2 TR.3 SPARE

DK-SEZ SUBSTATION

TENANT 1 TENANT 2 TENANT 3 TENANT 4 TENANT 5 TENANT 6 Source: JICA Study Team Figure 7.5.24: 33 kV Underground Distribution System

 Conclusion of Method of 33 kV Distribution System The comparison between the two distribution systems is shown in Table 7.5.16. Considering reliability, expandability, and lower construction cost, overhead distribution lines shall be adopted.

7-45 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report The outgoing feeders of the SEZ Substation will be 12 feeders (3 spare feeders). Using the overhead line for all the 12 outgoing feeders will affect the landscape. Hence, in consideration of landscape, underground distribution lines will be used for the outgoing feeders from the SEZ Substation.

Table 7.5.16: Comparison of Overhead Line and Underground Cable Merit and Demerit Overhead Line Underground Line Landscape Inferior Superior Reliability against natural Inferior Superior disaster Workability of cabling Superior Inferior Expandability of tenant Superior Inferior Installation cost Reasonable Expensive Source: JICA Study Team

 Configuration of 33 kV Distribution System Based on the Distribution Standards and Guidelines Manual, Design Module by Kenya Power, the standard conductors to be used for the distribution lines will be 150 mm2. The specifications of the conductor are shown in Table 7.5.17.

Table 7.5.17: Specification of Distribution Line Conductor Nominal Code Steel Aluminium Overall Tensile Resistance Current Allowable Al. Area Name (No./mm2) (No./mm2) Diameter Strength at 20ºC Rating Capacity (mm2) (mm) (kg) (Ω/km) (A) at 33 kV (MVA) 150 Wolf 7/2.59 30/2.59 18.1 6880 0.1844 430 24.577 Source: Distribution Standards and Guidelines Manual, Design Module by Kenya Power

The current ratings are based on the following operating conditions:

- Ambient temperature: 35oC - Maximum conductor temperature: 75oC - Intensity of solar radiation: 0.089 W/cm2

Allowable capacity of one circuit distribution line is up to 24.5 MVA. Because peak demand of the SEZ will be 135 MVA, six distribution lines will be installed in the SEZ. Figure 7.5.25 shows the layout of the power distribution plan for the SEZ.

In addition, considering the six distribution lines with each line having a capacity of 24.5 MVA, the SEZ area will be divided into six zones with the power demand of each zone less than 24.5 MVA.

To supply the whole SEZ in three phases, the 33 kV distribution line will be installed as follows:

- 33 kV double circuit underground cable: 5,570 m - 33 kV double circuit overhead line: 41,716 m

7-46 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 7.5.25: Layout of 33 kV Distribution Line Plan

7-47 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report The phased development of power supply facilities for the SEZ is shown below. This is dependent on the estimated power demand of the SEZ, growing from 39.4 MVA in Phase 1 (2018) to a total power demand of 134 MVA in Phase 3 (2030) for the whole SEZ. The outline of the development scenario is discussed below.

Phase 1 (2018): Supply of 40 MVA through 33 kV double circuit distribution line from the SEZ Substation.

It is required that the initial power supply facilities for the SEZ shall be completed by 2018 when the SEZ starts operations. Therefore, 132 kV switch yard, two 75 MVA transformers, and 33 kV switch gears for the two transformers will be installed in the SEZ Substation as an early countermeasure against possible power supply deficiency. The 33 kV distribution line will be installed as follows:

- 33 kV double circuit underground cable: 3,728 m - 33 kV double circuit overhead line: 15,700 m

Phase 2 (2025): Supply of 67 MVA through 33 kV double circuit distribution line from the SEZ Substation.

In this phase, the SEZ Substation will be completed by installing the last 75 MVA transformer and the 33 kV switch gear for this transformer. The 33 kV distribution line will be installed as follows:

- 33 kV double circuit underground cable: 1,726 m - 33 kV double circuit overhead line: 10,040 m

Phase 3 (2030): Supply of 28 MVA through 33 kV double circuit distribution line from the SEZ Substation.

In this phase, there are no more substation installations because the SEZ Substation was already completed in Phase 2 (2025).

The 33 kV distribution line will be installed as follows:

- 33 kV double circuit underground cable: 1,958 m - 33 kV double circuit overhead Line: 5,551 m

 Typical Distribution Line Arrangement

To reduce power outages caused by fires in slums which destroy wooden electric poles, concrete poles will be installed in this project. A 15 m concrete pole will be applied following the concrete pole regulation issued by Kenya Power. Figure 7.5.26 shows the typical distribution line arrangement on the road.

7-48 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

12.9 15

1.5 2.5 2.5 1.5 4.25 4.25 2.5 1.5 3.5 3.5 1.5 3.5 3.5 1.5 2.5 11.75 11.75 23.5 32.0 m (ROW) Source: JICA Study Team Figure 7.5.26: Typical Distribution Line Arrangement in the Road

(5) Conclusion and Recommendations

Conclusion Required facilities for the proposed power supply system plan are summarised in Table 7.5.18.

Table 7.5.18: Summary of Power Supply Facilities No. Item Quantity 1 Transmission Line a) 132 kV double circuit overhead line 26.5 km 2 SEZ Substation a) 132 kV double busbar switchyard AIS (includes DS, CB, CT, LA) 1 lot b) 75 MVA -132/33 kV – main transformer 3 lot c) Indoor switchgear 33 kV GIS with 15 outgoing feeders 1 lot d) Control and protection equipment, batteries, chargers, control 1 lot building, communication equipment 3 Distribution Line a) 33 kV double circuit underground cable 5,570 m b) 33 kV double circuit overhead line with concrete pole 41,716 m 4 Relocation of Existing 11 kV Distribution Line in the SEZ Area a) Removal of 11 kV distribution line 3,900 m Source: JICA Study Team Recommendations The implementation of the following recommendations will be the major basis for the development of an effective and reliable power supply system:

- To enhance the reliability and flexibility of power supply, the SEZ shall be installed with a 132/33 kV substation in Phase 1 (2018). This is the permanent power supply source for all power demand in the SEZ.

7-49 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report - As for the 33 kV distribution system for power supply to the tenants, overhead lines shall be adopted in order to enhance reliability and expandability, and reduce costs. - The SEZ shall apply for certification from the Kenya Power during the detailed design stage. Regular meetings with Kenya Power regarding power supply will be required. - The 132/33 kV substation and 33 kV distribution system shall be handed over to Kenya Power. The power supply system will be maintained by Kenya Power. - An organisation for operation and maintenance (O&M) of electrical utilities will be established.

7.5.5 Water Supply System Plan

(1) Basic Concept

The proposed design standards for the water supply system within the area are as follows:

1) To apply the following regulations and standards:

･ Drinking Water Standard of Kenya and the World Health Organization (WHO) ･ Practice Manual for Water Supply Services in Kenya, October 2005, Ministry of Water and Agriculture

･ Design Guideline for Water Facilities 2012, Japan Water Works Association

2) To refer to the following reports and statistics:

･ Water Supply Master Plan for Mombasa and Other Towns within the Coast Province, March 2013, CWSB & WB

･ Detailed Design Report (Draft) for Mwache Multipurpose Dam Development Project, May 2013, Ministry of Regional Development Authorities

･ Detailed Design Report for Mombasa Port Development Project, June 2010, KPA

3) To harmonise with the Water Supply Master Plan (World Bank), Mwache Multipurpose Dam Development Project and Mombasa Southern Bypass Development Project

(2) Design Criteria

The following design for the water supply facilities is applied for the SEZ:

1) Pipeline

- Water pressure at consumption points must be at least 15 m (1.5 kg/cm2) during normal condition and at least 10 m (1.0 kg/cm2) during fire fighting condition. - High-density polyethylene pipe (HDPE) will be used for the distribution mains. - Ductile cast iron pipe (DCIP) will be used for the water transmission pipeline. 2) Installation

- Earth covering should be at least 0.6 m from the ground surface to the top of pipe. - For connection with valves, fittings such as flanges, tees, or bends, mechanical joint

7-50 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report and/or anchor joint will be used. Welding of pipe is avoided at the connection points. - Thrust forces in the pipeline arise when the pipeline changes directions at bends, tees or dead ends, changes in size at reducers, or where pipes are laid on a slope. It is necessary to arrange pipe support, such as thrust block or restrained joint, at locations where thrust forces occur. - In addition, supports will be arranged inside valve pits near turning points. - The pipeline shall be totally placed on stable tamped ground and the pressure of the pipeline to be installed shall not be highly sectional. 3) Incidental Facilities with Accessories

- T-branch for tenants consists of a water meter, a stop valve, and a dead-end pipe. T-branch will be installed at a connection point with each development lot considering the land use plan. The minimum interval between T-branches is 100 m. - Air release valve will be installed at the highest point of the convex part in the pipeline. - Drain valve will be installed at the lowest point of the convex part in the pipeline. - A control valve with a flow meter will be installed at necessary junctions to monitor and repair leakage points in the future. 4) Fire Fighting System

- The capacity for fire fighting should not be less than 10 Lps during two hours. - The minimum pressure at design flow should be 0.1 MPa (10 m water head) in pipe sections where consumer connections may be made and 0.04 MPa (4 m) in other cases. The levels of the surrounding areas to be served from the pipeline must be considered when determining the minimum pressure. - The static pressure in pipes with consumer connections should be not more than 0.6 MPa (60 m) unless the terrain makes higher pressures unavoidable. Higher pressure than 0.6 MPa may require special fittings, ball valves, and stop valves for the consumer connections. - In urban areas with provision for fire fighting, the minimum pressure of 0.15 MPa (15 m) should be upheld at a withdrawal of 10 Lps. There should be an isolating valve downstream of each fire hydrant in a non-loop system. - Urban areas with fire tenders do not require high main pressure and the only requirement is that there is adequate supply of water at the hydrant. Providing for piping not less than 100 mm or 150 mm in very high value commercialised areas normally ensures this. - In areas with high fire risk, town centres, and industrial areas, the distance between fire hydrants shall be 65-100 m, and in residential areas, it should be 150-200 m.

7-51 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (3) Unit Water Consumption Rates

Water demand for the SEZ is projected based on the Kenyan water consumption rates categorised by consumers, as shown in Table 7.5.19. The water consumption figures include 20% allowance for water losses through leakage and wastage.

Table 7.5.19: Water Consumption Rates RURAL AREAS URBAN AREAS High Medium Low High Class Medium Low Class CONSUMER UNIT Potential Potential Potential Housing Class Housing Housing People with individual 1/head/ day 60 50 40 250 150 75 connections People without 1/head/ day connections 20 15 10 - - 20 Livestock unit 1/head/ day 50 - Boarding schools 1/head/ day 50 Day schools - with WC 1/head/ day 25 - without WC 5 Hospitals - Regional 400 + 20 1 per outpatient and day (minimum 1/bed/ day - District 200 5000 1/day) - Other 100 Dispensary and 1/day 5000 Health Centre Hotels - High Class 600 1/bed/ day - Medium Class 300 - Low Class 50 Administrative 1/head/ day 25 offices Bars 1/day 500 Shops 1/day 100 Unspecified 1/ha/day 20,000 industry Coffee pulping 1/kg coffee 25 (when re-circulation of water is used) factories Source: Practice Manual for Water Supply Services in Kenya, October 2005, Ministry of Water and Agriculture

(4) Water Demand Projection and Design Flow

1) Unit Water Consumption and Demand

Unit water consumption and water demand are calculated based on Kenyan standards, criteria of the detailed design report for the Mombasa Port Development Project (D/D Criteria), and Japanese standards, as shown in Table 7.5.20.

7-52 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.5.20: Water Demand Projection (Unit: m3/day) Name of Zone Phase I Phase II Phase III Overall a Port 0 160 160 320 b Freeport/Free Trade Zone D*1 01535 50 Unit (m3/ha/day) 1.5 1.5 1.5 c Freeport/Free Trade Zone A/B/C*2 1,340 180 900 2,420 Unit (m3/ha/day) 20 20 20 d Industrial Park(m3/day) 3,400 6,500 2,200 12,100 Unit (m3/ha/day) 100 100 100 e Resettlement A/B/C/D (m3/day) 450 0 0 450 Unit (l/head/day) 150 150 150 f Residential E (m3/day) 0 125 200 325 Unit (l/head/day) 250 250 250 g Service Area (m3/day) 8 0 18 26 Unit (l/head/day) 25 25 25 h MICE (m3/day) 0 65 0 65 Unit (l/head/day) 25 25 25 i Tourism (m3/day) 0 720 1,632 2,352 Unit (l/bed/day) 600 600 600 j Power Plant Domestic (m3/day) 3800 38 Unit (m3/ha/day) 0.6 0.6 0.6 Cooling Water*3 10,343 k Enterprise Area A~J 1,700 3,640 1,200 6,540 Unit (m3/ha/day) 20 20 20 l Utility 11 0 0 11 Unit (m3/ha/day) 0.6 0.6 0.6 Total 6,947 11,565 6,185 24,697 Approximate 6,950 11,570 6,180 24,700 (Note) *1: D/D Criteria is adopted since the area is utilised for the facility relative to KPA. *2: Kenyan standard is adopted since the area is categorised as unspecified industry zone. *3: A volume of cooling water is excluded from water demand for the water supply. Source: JICA Study Team 2) Design flow

In this study, three types of water volumes are set to account for designing various water supply facilities, namely: - Daily average water flow (DAWF): Generally applied to base data for designing water treatment plant, reservoir, and water tower. - Daily maximum water flow (DMWF): Generally applied to the design of water treatment plant which can retain the maximum inflow year round. - Hourly maximum water flow (HMWF): Generally applied to the design of water supply pipeline network. The design water flows are estimated as shown in Table 7.5.21.

Table 7.5.21: Design Water Flow (Unit: m3/day) Phase I Phase II Phase III Type of Design Flow Overall Factor (2018) (2025) (2030) Daily Average Water Flow: DAWF 6,947 11,565 6,185 24,697 1.00 Daily Maximum Water Flow: DMWF 8,684 14,456 7,732 30,871 1.25 Hourly Maximum Water Flow: HMWF 13,894 23,130 12,370 49,394 2.00 Source: JICA Study Team

7-53 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (5) Water Source and Transmission Pipeline for the SEZ

1) Mwache Multipurpose Dam Development Project

The Mwache Multipurpose Dam Development Project will be implemented by the Ministry of Environment, Water and Natural Resources in collaboration with the World Bank in order to improve the living standards of Kwale and Mombasa residents. The outline of the project is summarised as follows: - Location of Mwache Multipurpose Dam site: RGS 3MA03: Latitude 3o9’55” S and Longitude 39o6’58” E - Water treatment plant/ Domestic water supply: 186,000 m3/day, demand forecast is: Year 2018 : 116,251 m3/day Year 2021 : 130,331 m3/day Year 2024 : 145,995 m3/day Year 2027 : 163,376 m3/day Year 2033 : 186,000 m3/day - Water height of storage tank: High level= EL 100 m, Minimum operating level: EL 49.5 m - Domestic water transmission lines: DN900 and 2DN1200 - Implementation period: 2014 – 2018 (loan agreement (L/A) has not yet been concluded at present) It is strongly recommended that the water source for the SEZ will be the Mwache Multipurpose Dam domestic water supply system. The Mombasa Southern Bypass Road Development Project under ODA is planned to be completed by the end of 2018. The SEZ transmission pipeline is planned to be installed along the Mombasa Southern Bypass Road. The locations of Mwache Multipurpose Dam domestic water supply system, the Mombasa Southern Bypass Road and the SEZ water supply are presented in Figure 7.5.27.

MWACHE DAM N

Transmission pipeline for water supply

Water supply for DK‐SEZ By‐pass road

Mombasa SDKEZ ‐SEZ

0 km 5 km

Source: JICA Study Team Figure 7.5.27: Location of Mwache Dam Water Supply System, Mombasa Southern Bypass Road and SEZ Water Transmission

7-54 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 2) Connection Point Between Mwache Water Transmission and the SEZ Water Transmission The SEZ water supply scheme to get water from the Mwache domestic water supply system is planned as shown in Figure 7.5.28. Connection point between the Mwache water transmission pipeline and the SEZ water transmission pipeline is recommended to be near the crossing point between the Mwache water transmission pipeline and the Mombasa Southern Bypass. Coordinates of the crossing point between the Mwache transmission line and the Mombasa Southern Bypass are WGS84 X=563333.5649 and Y=9557234.9373.

Source: JICA Study Team Figure 7.5.28: Connection Point between Mwache Transmission and SEZ Transmission

7-55 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 3) Quantity of SEZ Water Transmission Pipeline

The SEZ water transmission pipeline is summarised in Table 7.5.22.

Table 7.5.22: Summary of the SEZ Transmission Pipeline Description Unit Quantity SEZ Water Transmission Pipeline I Water Transmission Pipeline Stage 1 (by 2018) Phase I 1 Branch Point Installation Work Tee DN1200 x DN600 unit 1 Control Valve DN600 unit 1 Branch Pipe with Pipe Blind: DCIP DN600 Unit 1 Valve Box Unit 1 2 Transmission Pipeline for the SEZ Transmission Main: DCIP DN600 m 2,500 Receiving Tank and Anti-cavitation Float Butterfly Valve unit DN600 1 D600 Electromagnetic Flow Meter, Valve and Box unit 1 Transmission Branch: DCIP DN350 m 9,280 3 Booster Pumping Station No.1 (Mwache Bridge L=660 m) Booster Pump D250 x 5.47 m3/min x 100 m x 135 kW unit 3 Generator 460 kVA unit 1 Operation and Generator House place 1 4 Booster Pumping Station No.2 (Mteza Bridge L=1440 m) Booster Pump D250 x 5.47 m3/min x 55 m x 75 kW unit 3 Generator 225kVA unit 1 Operation and Generator House place 1 II Water Transmission Pipeline Stage 2 (by 2025) Phases II and III 1 Transmission Pipeline for the SEZ Transmission Branch: DCIP DN350 m 9,280 2 Booster Pumping Station No.1 (Mwache Bridge L=660 m) Booster Pump D250 x 5.47 m3/min x 100 m x 135 kW unit 3 Generator 460 kVA unit 1 Operation and Generator House place 1 3 Booster Pumping Station No.2 (Mteza Bridge L=1440 m) Booster Pump D250 x 5.47 m3/min x 55 m x 75 kW unit 3 Generator 225 kVA unit 1 Expansion of Operation and Generator House place 1 Source: JICA Study Team

4) Alternatives of Water Source for the SEZ Water Supply at Initial Stage

It is expected that the Mwache Multipurpose Dam Development Project will be implemented from 2015 to 2019 since the L/A is concluded by the end of 2014. The minimum water requirement is estimated at 3,782 m3/day because the enterprise areas are supposed to provide water on their own account at the initial stage. As the SEZ Phase I will be developed in 2018, the SEZ water supply plan is reconsidered with the following urgent countermeasures to secure the minimum water requirement at the initial stage of the SEZ.

7-56 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Rainwater Storage Pond The rainwater storage pond is planned by the following procedure and the layout plan of the pond is presented in Figure 7.5.29.  Annual rainfall of 90% probability: 657.9 mm  Water demand: 3,782 m3/day  Required catchment area: 259 ha < Existing catchment area: 293 ha (see Figure 7.5.29)  Rainwater yield: 1,531,589 m3/year  Longest dry spell in months, average year: 6 months (Average monthly rainfall: less than 50 mm)  Storage for dry spell: 688,269 m3  Pond size (Trapezoid): Upper hem: 702 m, Lower hem: 668 m, Height: 8.5 m  Effective volume of pond: 2,199,293 m3 (Upper hem: 700 m, Lower hem: 672 m, Height: 7m)  Surface area of pond: 490,000 m2  Evapotranspiration: 569,637 m3/year  Required storage capacity: 2,101,226 m3 < Effective volume of pond: 2,199,293 m3  Rough construction cost: USD 49.6 million in total as shown in Table 7.5.23 Table 7.5.23: Direct Construction Cost (Unit: USD) Item Unit Quantity Unit Cost Amount 1 Soil Work for Embankment m3 2,100,000 23.1 48,510,000 Booster Pump (D150 x 1.31 m3/min x 85 m 2 unit 3 15,000 45,000 x 35 kW) Generator 120 kVA unit 1 17,500 17,500 Operation and Generator House place 1 80,000 80,000 Intake Tower (3000 m3/d) unit 1114,500 114,500 3 Conveyance Pipeline HIDP D300 x 4800 m m 4,800 65 311,040 4 Inlet and Overflow Facilities LS 490,780 Total 49,568,820 Source: JICA Study Team

7-57 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Pond Area: 50 ha

Catchment Area: 293 ha

Source: JICA Study Team Figure 7.5.29: Location of Catchment Area and Rainwater Storage Pond

Borehole Development It is assumed that five production boreholes will be constructed at the abovementioned pond area and the pumping ratio per well will be 10 Lps although data regarding the groundwater potential in this area is lacking. For the borehole development, the construction cost of the system including the geo-electric/physical resistance survey fee is estimated at USD 0.74 million. The borehole system consists of the items shown in Table 7.5.24. The unreliability of borehole development with proper quantity and quality in Mombasa is a concern. Table 7.5.24: Borehole System Component Item Unit Q'ty 1 Geo-electric / Physical Resistance Survey place 20 Test Boring & Sampling place 10 Production Borehole Construction place 5 Pumping Test place 5 Water Quality Analysis place 5 2 Submersible Pump D100 x 10 L/s x 65 m x 11 kW unit 5 Generator: 22 kVA unit 5 Operation & Generator House place 5 3 Tubewell Booster Pumping Station place 1 Tubewell Booster Pump (D150 x 1.31 m3/min x 85 m x 35 unit 3 kW) Generator: 120 kVA unit 1 4 Conveyance Pipeline HIDP D300 x 4800 m m 4,800 Source: JICA Study Team

7-58 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Kayabombo Reservoir Kayabombo Reservoir has two tanks, namely, an existing tank with a capacity of 1,400 m3, and a new tank with a capacity of 2,000 m3. Provided that Kwale County agrees to supply water from Kayabombo Reservoir to the SEZ, the required facilities are presented in Table 7.5.25.

Table 7.5.25: Direct Construction Cost (Unit: USD) Item Unit Q'ty Unit Cost Amount Booster Pump (D150 x 1.31 m3/min x 140 m 1 unit 3 21,000 63,000 x 50 kW) 2 Generator 175 kVA unit 1 25,000 25,000 Operation and Generator House with 3 place 1 123,000 123,000 Reservoir 4 Conveyance Pipeline HIDP D300 x 4800 m m 10,000 65 648,000 Total 859,000 Source: JICA Study Team

Comparison of Alternative Water Sources and Conclusion The comparison of alternatives is presented in Table 7.5.26. The construction cost of rainwater storage pond is too high for the SEZ to spend for a temporary facility. Although borehole development has the lowest cost, the success of borehole development is very problematic from the viewpoint of groundwater potential in the SEZ. Water supply from the Kayabombo Reservoir is practicable but Kwale County’s agreement is required. It is recommended that implementation of the Mwache Multipurpose Dam Development Project should be accelerated by the Kenyan government.

Table 7.5.26: Comparison of Alternative Water Sources Mwache Dam Rainwater Storage Borehole Kayabombo Water Supply Pond Development Reservoir Phase I Water Source Mwache River Rainwater Underground Marere Spring Supplied Water Volume 15,423 m3/d 3,782 m3/d 3,782 m3/d 3,782 m3/d  Transmission  Pond  Borehole  Booster Pumping Main: 2.5 km Embankment: 2 Development Station: 1 unit  Transmission million m3 Work  Conveyance Branch: 9.3 km  Booster Pumping  Submersible Pipeline: 10 km Required Facility  Booster Pumping Station: 1 unit Pump: 5 units Station: 2 units  Conveyance  Booster Pumping Pipeline: 4.8 km Station: 1 unit  Conveyance Pipeline: 4.8 km Rough Construction USD 4.6 million USD 16.7million USD 0.7 million USD 0.9 million Cost  Delay of  High ratio of  Unknown water  Requires Kwale's implementation evapotranspiration quantity and agreement Issues schedule  High construction quality cost Validity Good Poor Poor Moderate Source: JICA Study Team

7-59 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (6) Outline of the SEZ Water Supply System Plan

1) Proposed Water Supply System Plan

The general layout plan of the water supply system for the SEZ is presented in Figure 6.5.30. The system consists of two categories, namely, water distribution centre (WDC) and distribution pipeline.

Source: JICA Study Team Figure 7.5.30: General Layout of the SEZ Water Supply System Plan

7-60 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 2) Distribution Pipeline

The total length of the distribution pipeline is estimated to be around 65.9 km, which consist of 20.4 km distribution mains and 45.5 km sub-mains/tertiaries.

3) SEZ Water Supply Scheme

The SEZ water supply scheme is summarised in Table 7.5.27.

Table 7.5.27: Summary of SEZ Water Supply Scheme Description Quantity I Water Transmission Pipeline Scheme 1 Transmission Stage 1: 2.5 km DN600 DCIP, 9.28 km DN350 DCIP, 2 Booster Pumping Stations - 2 Transmission Stage 2: 9.28 km DN350 DCIP, 2 Booster Pumping Stations - II Water Distribution Centre (WDC) - WDC Stage 1: Reservoir 4,025 m3 x 2 units, 35 m Elevated Tank, Lift Pumping 1 Station - WDC Stage 2: Reservoir 4,025 m3 x 2 units, 35 m Elevated Tank, Lift Pumping 2 Station - III Distribution Pipeline 65,875 m 1 Distribution Phase I 32,373 m Water Mains: DN800 DCIP, DN600 HDPE – DN200 HDPE 9,393 m Sub-mains/Tertiaries: DN350 HDPE – DN32 HDPE 22,980 m 2 Distribution Phase II 21,547 m Water Mains: DN400 HDPE – DN150 HDPE 11,030 m Sub-mains/Tertiaries: DN300 HDPE – DN50 HDPE 10,517 m Distribution Phase II (Sub-mains/Tertiaries): DN300 HDPE – 3 DN50 HDPE 11,955 m Source: JICA Study Team

The abovementioned facilities will be developed by the Kenyan government since these facilities, such as transmission pipeline, WDC, and distribution mains, are required public services for the SEZ and its surrounding area.

(7) Recommendations

For the implementation of the water supply plan, the following measures are recommended:

1) Structural Measures

It is recommended that the SEZ water supply scheme, especially the transmission pipeline and water distribution centre, shall be integrated into the Mwache Multipurpose Dam Development Project. Implementation of the Mwache Multipurpose Dam Development Project shall be accelerated by the Kenyan government. The SEZ water supply system plan should be totally re-examined and modified considering the Mwache domestic water supply system for the detailed design of the transmission and distribution mains in the whole area of SEZ. The detailed design of the SEZ water supply system should be prepared in consideration of the harmonisation with the Mombasa Southern Bypass Road and its infrastructures to be improved by the Kenyan government.

7-61 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report The water transmission pipelines should be appropriately designed for river crossing and road crossing.

2) Non-structural Measures

The O&M for the water supply system in SEZ will be conducted by the Mombasa WSC. The levy collection shall be conducted by the Mombasa WSC under one-stop service in the SEZ.

7.5.6 Drainage System Plan

(1) Meteorological Conditions

Mombasa belongs to the tropical monsoon area. The maximum monthly rainfall occurs in May at 214 mm, and the minimum monthly rainfall occurs in February at less than 10 mm, on average in ten years. According to Moi International Airport Meteorological Station, the rainfalls recorded in the past ten years from 2004 to 2013 are as follows: - Monthly maximum: 499.2 mm - Annual maximum: 1,648.2 mm Table 7.5.28 and Figure 7.5.31 show the monthly rainfall in Mombasa.

Table 7.5.28: Monthly Rainfall in Mombasa (2004-2013)

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total 2004 79.5 8.1 10.8 109.7 26.2 126.4 64.0 14.5 8.8 219.8 74.1 32.2 774.1 2005 41.8 0.0 38.1 142.0 138.0 113.7 78.8 55.0 34.3 43.4 224.8 19.8 929.7 2006 0.6 5.6 76.6 333.2 251.9 123.0 49.8 80.0 148.1 303.3 209.2 66.9 1648.2 2007 18.5 0.0 24.1 102.3 499.2 129.4 42.9 105.5 110.9 116.7 74.0 37.4 1260.9 2008 35.6 0.0 83.7 66.0 201.1 152.5 93.0 17.6 24.9 57.8 74.1 20.1 826.4 2009 4.5 6.5 30.9 36.3 67.2 117.9 37.1 30.7 3.2 281.6 11.5 30.5 657.9 2010 16.2 0.4 47.8 184.0 326.4 93.8 62.5 30.7 3.2 281.6 103.4 37.5 1187.5 2011 0.9 66.6 10.3 55.8 155.1 36.9 21.8 30.0 65.9 227.2 49.4 19.2 739.1 2012 TR 1.9 0.0 35.0 166.9 35.1 20.9 74.3 20.6 96.6 172.8 11.9 636.0 2013 8.5 TR 146.7 78.2 312.3 54.7 52.2 55.8 56.8 77.2 50.8 66.3 959.5 Total 206.1 89.1 469.0 1142.5 2144.3 983.4 523.0 494.1 476.7 1705.2 1044.1 341.8 9619.3 Ave. 22.9 9.9 46.9 114.3 214.4 98.3 52.3 49.4 47.7 170.5 104.4 34.2 961.9 Source: Moi International Airport Meteorological Station, Mombasa. Note: TR = Trace (Rainfall < 0.1 mm)

7-62 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: Moi International Airport Meteorological Station, Mombasa, Figure 7.5.31: Monthly Rainfall in Mombasa (Average for Ten Years)

(2) Design Condition and Principal Feature

Storm water removal for the development of the SEZ is significantly important for safety and economy (saving money), and thus, careful planning and design are required. Drainage system is designed by applying the conventional hydraulic method often used for development projects. The peak runoff at any given point in the project is calculated using the following rational formula. The return period and rainfall intensity of the design rainfall are based on the road design guidelines for urban roads in Kenya. Capacity of drainage is estimated by applying the design rainfall intensity of 46 mm/hr of one hour rainfall (design return period of five years). The rainfall intensity curve is utilised for the drainage system to analyse the rainfall intensity at each reference point. The planned drainage amount based on the runoff coefficient in each area is calculated. Table 7.5.29 shows the design conditions of the drainage system in this study.

Table 7.5.29: Design Condition of Drainage System Item Design Condition Remark Formula based on the road design guidelines of Kenya The road design guidelines I={1700･log(n.R) - 3000} / (t +20) for urban roads (August, where; 2001): p.11-3. Rainfall I: rainfall intensity (mm/hour) Maximum annual rainfall intensity n: design return period (years): 5 years (for development) (1,648.2 mm) in 2006 by Moi R: annual rainfall (mm): 1,648.2 mm International Airport t: concentration time (min): t=t1+t2 Meteorological Station. One-hour rainfall: 45.7 mm/hr (Refer to Figure 5.5.31) Inlet time t1=10 min (Area where population density is low) Referring to the design t2=L/V guidelines for sewerage where; facility (JSWA in Japan). flow time L: drainage length (m) V: flow velocity of drainage (m/s) Rational method Runoff Q=1/360CIA calculation where;

7-63 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Item Design Condition Remark C: runoff coefficient I: rainfall intensity (mm/hour) A: area (ha) 0.70: Industrial park, Free trade zone, Port, Freeport Referring to the design Runoff 0.50: Residential area, Service area, Utility area guidelines of Kenya and coefficient 0.40: Tourism park, LNG power plant, Enterprise area Japan. 0.30: Reserve area Manning’s formula Referring to the design Q=AV guidelines for sewerage V=(1/n) x R2/3 x I1/2 facility (JSWA in Japan). Hydraulic where, design Q: drainage flow rate (m3/s) formula A: cross sectional area of drainage (m2) V: velocity (m/s) n: roughness coefficient of drainage(open channel:0.015) I: hydraulic gradient (-) Minimum: 0.8 m/s (for self cleansing) Velocity Maximum: 3.0 m/s (for safety and avoiding damage) Margin quantity (height) of open channel: 0.2d (Effective height Referred the design Margin is 80% of the depth of water) guidelines for sewerage quantity facility (JSWA in Japan). Open channel (Dressed stone in mortar, Brick): n=0.015 Referring to the design Roughness Culvert, Pipe (Concrete): n=0.013 guidelines of Kenya and coefficient Japan. Source: JICA Study Team

Source: JICA Study Team (Formula based on the road design guidelines of Kenya) Figure 7.5.32: Rainfall Intensity

In order that the drainage system is designed based on gravity flow method as a general rule, the layout must be planned by adjusting to the topography in the area. For the drainage system plan in the SEZ area, the following design policies are used: - The main routes of drainage are traced on some existing valleys, in case of enterprise area and reserve area (the area will not be developed/cut-filled in advance of sale). - The other routes of drainage are traced based on planned road and ground level, in case of industrial park and free trade zone (the area will be developed/cut-filled in advance of sale).

7-64 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report - At the steep hillside, in case the flow velocity becomes very fast, the stepped drop will be installed in the drainage. - The rainwater is drained directly to the sea. - Since the land grading level is higher than the high tide level, a retention pond for flood control is not provided. Table 7.5.30 shows the principal features of the drainage system in this study.

Table 7.5.30: Principal Features of Drainage System Item Principal Features Remarks Open channel as a general rule: Referring to the road design - Channel wall of loose slope: 1:2.0 guidelines for urban roads For undeveloped area (e.g., reserve area) (August, 2001).

- Channel wall of steep slope: 1:1.0 or 1:0.5 For development area (e.g., industrial area)

Sectional

shape of Culvert as undercrossing of road: drainage - Box culvert For large cross section (drainage)

- Circular pipe For small cross section (drainage)

At the steep hillside: Referring to the design guidelines for sewerage Stepped facility (JSWA in Japan) drop

Source: JICA Study Team (3) Outline of Drainage System Plan

The SEZ area was separated into four major basins under the drainage system plan. The drainage system plan has been summarised in Table 7.5.31.

7-65 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.5.31: Outline of Drainage System Plan Item Principal Features Catchment area of 4 basins: - Area No.1: 689 ha - Area No.2: 134 ha Major basins - Area No.3: 324 ha - Area No.4: 36 ha Note: The catchment area outside the development area is also included above. Other basins are not described in this study.

Open channel: W114500/W25500 x H2000 - W12500/W22500 x H500 Drainage system Open ditch: W2500 x H2000 - W300 x H300 (both sides) Box culvert: W2400 x H2000 (triple) - W800 x H800 (single) Stepped drops: Step H500 or H1000 Source: JICA Study Team

Figure 7.5.33 and Figure 7.5.34 show the drainage system plan.

7-66 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 7.5.33: Drainage Catchment Area

7-67 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 7.5.34: Drainage System Plan

7-68 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.5.32: List of Drainage System Facilities Item Total (m) Open channel U14500/5500x2000 215 Open channel U12500/4500x2000 553 Open channel U11500/3500x2000 1,808 Open channel U11000/3000x2000 338 Open channel U10500/2500x2000 768 Open channel U9500/1500x2000 267 Open channel U8000/2000x1500 1,439 Open channel U7000/1000x1500 516 Open channel U6500/500x1500 1,345 Open channel U5500/1500x1000 282 Open channel U4500/500x1000 1,179 Open channel U4000/2000x500 224 Open channel U3500/1500x500 997 Open channel U2500/500x500 1,538 Main road ditch (U500x500~U1000x1000), both sides 8,667 Area road ditch (U300x300~U800x800), both sides 9,689 Box culvert 2400x2000, triple 191 Box culvert 2000x2500, twin 307 Box culvert 800x800, single 150 Stepped drops 220 Open ditch (U500x500~U2500x2000), both sides 10,771 Box culvert ( 1000x1000~2000x2000, single) 380 Total 41,844 Source: JICA Study Team 7.5.7 Sewerage System Plan

(1) Wastewater Volume

The amount of wastewater is usually generated from some proportion of the amount of supply water. Some parts of the supply water will be consumed for domestic use and industrial process. Referring to the fee rate of water and wastewater in MWSC, wastewater volume is assumed at 75% of the supply water in the SEZ area. The estimated amount of wastewater for each area is shown in Table 7.5.33.

Table 7.5.33: Estimated Amount of Wastewater (Volume of Average per Day) Items Water Demand (m3/day) Wastewater Volume (m3/day) Phase 1 Phase 2 Phase 3 Phase 1 Phase 2 Phase 3 Land Use Zone Total Total (2018) (2025) (2030) (2018) (2025) (2030) 1 Port 0 320 0 320 0 120 0 120 2 Freeport/Free trade zone A/B/C 1,340 180 900 2,420 1,005 135 675 1,815 3 Freeport/Free trade zone D 0 15 35 50 0 11 26 37 4 Industrial park 3,400 6,500 2,200 12,100 2,550 4,875 1,650 9,075 5 MICE area 0 65 0 65 0 49 0 49 6 Tourism parks 0 720 1,632 2,352 0 540 1,224 1,764 7 Service area 8 0 18 26 6 14 0 20

7-69 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Items Water Demand (m3/day) Wastewater Volume (m3/day) Phase 1 Phase 2 Phase 3 Phase 1 Phase 2 Phase 3 Land Use Zone Total Total (2018) (2025) (2030) (2018) (2025) (2030) 8 Power plant 38 0 0 38 29 0 0 29 9 Transmission line 0 0 0 0 00 0 0 10 Enterprise area (A/B/C) 1,700 2,260 0 3,960 1,275 1,695 0 2,970 11 Enterprise area (D~J) 0 1,380 1,200 2,580 0 1,035 900 1,935 12 Residential area E 0 125 200 325 0 94 150 244 13 Residential area A/B/C/D 450 0 0 450 338 0 0 338 14 Utility (SS, DC, utility area) 11 0 0 11 80 0 8 Total 6,947 11,565 6,185 24,697 5,211 8,568 4,625 18,404 Note: Wastewater volume of the port is calculated except for the water stocked to ship. Source: JICA Study Team (2) Concept of Sewerage System

There is no sewerage system in the SEZ area. Sewerage system in Mombasa is limited to the centre district. The major concept of the sewerage system plan for SEZ is as follows: 1) For Each Zone Developer Zone developer should ensure that the quality of wastewater discharged from its own area meets the standards. Discharge point from each zone will be stated in the internal regulation of the SEZ, which is one discharge point for each zone, and it will be necessary to install hand-hole and/or pit where samples can be taken to confirm the water quality by the relevant authority. Zone developer can have its own common WWTP or obligate the enterprise to have its own private WWTP to ensure compliance with the discharge water quality standards. Moreover, for the zone developer that will construct the building structure (e.g., housing, hotel, office tower), it shall meet the Kenyan building code and related standards to have septic tank and/or proper treatment system. 2) For Enterprise Enterprise shall follow the Kenyan building code and related standards to have septic tank and/or proper treatment system. 3) Wastewater Discharge Quality Standard The wastewater discharge standard in Kenya is prescribed by the “Environmental Management and Co-Ordination (Water Quality) Regulations, 2006 Arrangement of Regulations (Legal Notice NO.120)”, which is shown in Table 7.5.34.

7-70 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.5.34: Standards for Effluent Discharge into the Environment

Source: Republic of Kenya (Kenya Gazette Supplement No. 68, 29th September, 2006, Legislative Supplement No. 36)

7-71 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (3) Sewer System Plan

To estimate the construction cost for each zone, the sewer pipe network was planned based on the conditions below. 1) Formula for the Flow Rate of Sewer Pipes The Manning formula is used to calculate the flow in sewer pipes. 2) Velocity and Gradients in the Sewer Pipe The flow velocity is designed to increase gradually in the downstream direction, and the gradient is designed to decrease gradually in the downstream direction. The minimum and maximum velocities in the sewer pipe are set as follows: - Minimum velocity: 0.6 m/s - Maximum velocity: 3.0 m/s 3) Effective Cross Sectional Area of Sewer Pipes (Margin) The discharge volume of wastewater can greatly vary depending on the operational patterns in the factories. The sewer pipe should have some margins for such fluctuations. Therefore, the diameter of sewer pipes is determined by adopting the following margins: - Margin for sewer pipes (D250-600 mm): 100% of the planned wastewater amount - Margin for sewer pipes (D700-800 mm): 50% of the planned wastewater amount 4) Material of Sewer Pipes Considering the existing construction of sewerage projects in Kenya, reinforced concrete pipe will be selected. Minimum pipe diameter of 250 mm is determined from a maintenance point of view. Reinforced-concrete pipes that have resistance against external pressure (earth pressure and upper loads) should be selected. DCIP or HDPE pipes are used as pressure pipes. 5) Foundations of the Sewer Pipes The foundations of the sewer pipes must be designed considering the soil property, soil bearing capacity, construction techniques, loading conditions, and installation conditions. Uneven settling of pipes will cause clogging and emit bad odour. Considerable care should therefore be given during the construction of the foundations of pipes. Based on the situations described above, a reinforced-concrete foundation is recommendable. 6) Manholes Manholes are to be rectangular, and constructed with reinforced concrete. The standard (internal) dimension of the manhole should be as follows: - For any pipe with a diameter from 250 mm to 600 mm, B (width) x L (length) = 1,000 mm x 1,000 mm. - For any pipe with a diameter more than 600 mm, B (width) x L (length) = 1,200 mm x 1,200 mm.

7-72 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Manholes will be placed at the points requiring maintenance, at the pipe origin, at the points where the direction and gradient change significantly, at the points where the cross sectional shape changes, and at the points with different pipe heights. - Maximum interval of manholes: 50 m for easy maintenance (e.g., cleaning and repairing of sewer pipes). - Manhole cover: Circular iron cover (diameter = 600 to 750 mm) with sufficient sealing and durability. 7) Relay Pump Station Since the industrial park is planned on flat land, elevation of sewer pipe will become gradually deeper at the downstream area. This deep pipe would make the construction and maintenance of the sewers more difficult. Relay pump station at appropriate locations has therefore been considered to avoid this situation. 8) Proposed Sewer System The proposed sewer pipe network for the internal zones is shown in Figure 7.5.35, and the components are listed in Table 7.5.35.

Table 7.5.35: List of Sewer Pipes for the Industrial Park Item Total Sewer Pipe (m) φ250HP 8,745 φ300HP 1,735 φ350HP 991 φ400HP 596 φ450HP 24 φ500HP 0 φ600HP 238 φ700HP 0 φ800HP 1,709 φ150DP (Pressure) 277 Total 14,315 Manhole (no.) Manhole 1.0x1.0 m 411 Manhole 1.2x1.2 m 57 Total 468 Source: JICA Study Team

7-73 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 7.5.35: Sewer Pipe Network for the Industrial Park

7.5.8 Solid Waste Management Plan

(1) Legal Frameworks

Waste management is generally guided by the Waste Management Regulations 2006, as stipulated in the Environmental Management and Coordination Act, Legislative Supplement No. 37, Legal Notice No. 121. The existing waste disposal sites are subject to environmental monitoring and control audits by NEMA inspectors (Section 117 of EMCA, 1999) in conjunction with the lead agency (Municipal Council of Mombasa) and in the manner prescribed under Regulation 35 (3a-f). The standards and regulations that should be followed in the preparation of the waste management plan are listed as follows:

7-74 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report ･ Environmental Management By-laws, 2008, Municipal Council of Mombasa ･ The Environmental Management and Coordination Act, 1999 ･ Legal Notice No.120: Kenya Gazette Supplement No.68 Environmental Management and Coordination Act (Waste Management) Regulations, 2006 ･ Legal Notice No.121: Kenya Gazette Supplement No.69 Environmental Management and Coordination Act (Waste Management) Regulations, 2006 ･ Environmental Management and Co-Ordination (Water Quality) Regulations, 2006 ･ The Environmental (Prevention of Pollution in Coastal Zone and Other Segments of The Environment) Regulation, 2003 ･ Environmental Management and Coordination (Toxic and Hazardous Industrial Chemicals and Materials Management) Regulations, 2013 ･ The Public Health Act ･ Municipal solid waste generation rate: 0.5 kg/head/day in Mombasa

Additionally, the following report shall be referred to:

･ Mombasa Solid Waste Management Master Plan, 2006, French Government (AFT) and Ministry of Local Government

(2) Solid Waste Generation and Unit Yield

Solid waste volume is estimated at 768 t/day in the SEZ as shown in Table 7.5.36.

Table 7.5.36: Solid Waste Generation (Unit: t/day) Phase I Phase II Phase III Name of Zone Overall (2018) (2025) (2030) a Port 0.0 39.9 19.4 39.9 b Freeport/Free trade zone D 0.0 6.1 13.8 19.9 Unit Yield (t/ha/day) 0.6 0.6 0.6 Freeport/Free trade zone c 40.4 5.4 27.2 73.0 A/B/C Unit Yield (t/ha/day) 0.6 0.6 0.6 d Industrial park 106.6 203.4 67.0 377.0 Unit Yield (t/ha/day) 3.1 3.1 3.1 e Residential A/B/C/D 1.5 0.0 0.0 1.5 Unit Yield (kg/head/day) 0.5 0.5 0.5 f Residential E 0.0 0.5 0.8 1.3 Unit Yield (kg/head/day) 1.0 1.0 1.0 g Service area 0.2 0.0 0.4 0.6 Unit Yield (kg/head/day) 0.5 0.5 0.5 h MICE 0.0 3.6 0.0 3.6 Unit Yield (kg/head/day) 1.4 1.4 1.4 i Tourism 0.0 1.7 3.8 5.5 Unit Yield (kg/bed/day) 1.4 1.4 1.4 j Enterprise area A~J 51.2 109.3 36.2 196.7 Unit Yield (t/ha/day) 0.6 0.6 0.6 k Power plant 38.4 0.0 0.0 38.4

7-75 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Phase I Phase II Phase III Name of Zone Overall (2018) (2025) (2030) Unit Yield (t/ha/day) 0.6 0.6 0.6 l Utility 10.8 0.0 0.0 10.8 Unit Yield (t/ha/day) 0.6 0.6 0.6 Total 249.1 369.9 149.2 768.2 Source: JICA Study Team

(3) Planning Concept

The following concept is applied for the solid waste management in the SEZ: Planning area : 987 ha Generation quantity projection : 768 t/day Collection system : Separate system at enterprise side Toxic/hazardous waste : Individual treatment or storage at enterprise side Solid waste collection and transportation : Mombasa County Final disposal site : Shoda Quarry dumping site

(4) Recommended Solid Waste Management Plan

Under the current methods of solid waste management practiced in Mombasa, the following authorities are responsible for the respective wastes:

a) Ordinary solid waste and sewage sludge shall be managed by Mombasa County.

b) Toxic/hazardous waste is defined by the Environmental Management and Coordination (Toxic and Hazardous Industrial Chemicals and Materials Management) Regulations.

It is quite clear that Mombasa County is an executive agency for the collection and disposal of ordinary wastes including sewage sludge and thus, the wastes generated from the SEZ shall be collected and disposed under an agreement with Mombasa County. It is also understood that there are no agencies for the treatment and disposal of toxic/hazardous waste in Kenya. Therefore, the generators of toxic/hazardous waste are required to provide proper treatment and/or storage facilities in their own premises until suitable toxic/hazardous waste treatment plant and disposal site are made available by the Kenyan government.

1) Ordinary Solid Waste

Ordinary solid waste from the domestic, public, and industrial sectors of the SEZ will be left out for collection in a suitable container with capacity of 2 m3, typically a garbage bin with capacity of 25 kg. Such ordinary waste shall be collected, transported, treated and disposed at the planned Shoda Quarry sanitary landfill site by Mombasa County and the entrusted solid waste management enterprises. Recycling is not yet adopted by Mombasa County, but should be considered to reduce the amount of waste disposed to the landfill site and minimise its impact to the surrounding environment. Plastic and inorganic wastes, such as bottles and cans, are collected and reused in practice by private collectors. Non-recyclable waste should be disposed in the Shoda Quarry landfill site, which has

7-76 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report appropriate facilities for minimising pollution. Organic waste will also be disposed in the Shoda Quarry landfill site since there are no composting plants in the Coast region.

2) Hazardous and Other Wastes

The SEZ has a policy that enterprises should not discharge their hazardous wastes as Kenya does not have agencies that are able to treat and dispose these wastes. Accordingly, enterprises generating hazardous waste will be obliged to segregate at the source or treat their wastes under their responsibility.

Medical and infectious wastes generated in the SEZ are brought to the Shoda Quarry landfill site and disposed by Mombasa County.

Sludge will be generated by wastewater treatment plants and combined type septic tanks in the SEZ. The generated amount of sludge is estimated to be 5.0 m3/day. Sewage sludge will also be collected, transported, and disposed at the Shoda Quarry landfill site.

3) Proposed Solid Waste Management System

The solid waste management system for the SEZ is recommended as shown in Figure 7.5.36.

GENERATION S EP ARATIO N/DEP O SIT COLLECTION/TRANSPORT TR EA TMEN T/D IS P O S A L

Recyclable SW Enterprise Scavenger Private Recycle Company (plastic, bottle, can, etc.)

Non-Recyclable SW Shoda Quarry Dumping Site Enterprise Mombasa County (residuals) (sanitary landfilling)

Sewerage Sludge Shoda Quarry Dumping Site Mombasa County (excess sludge, night soil) (stabilization pond)

Cleaning SW Shoda Quarry Dumping Site Sub Developper Mombasa County (road, drainage, park) (sanitary landfilling)

Toxic/Hazardous SW Enterprise Individual T reatment/St orage

Individual T reatment/St orage Infectious SW Enterprise (incinerator)

Source: JICA Study Team Figure 7.5.36: Solid Waste Management System for the SEZ

4) Recommendations

In conclusion, the following issues on solid waste management are recommended not only for the SEZ but also for Mombasa County:

a) Shoda Quarry dumping site (25 acres in total) shall be improved with a sanitary landfill as described by the Mombasa solid waste management master plan.

b) Truck scale shall be provided at the Shoda Quarry site.

7-77 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report c) The garbage collection system in the Mainland South zone shall be reinforced by the environmental department of Mombasa County, for instance, setup of branch office with workshop, enhancement of trucks/heavy machines, and provision of garbage containers.

d) Sub-developers, especially industrial park developers, shall make a general agreement with Mombasa County for solid waste management in the SEZ.

e) Enterprises generating toxic/hazardous waste in the SEZ shall segregate their toxic/hazardous waste at the source and/or treat it under their responsibility.

7.5.9 Telecommunication System Plan

(1) Basic Concept of Telecommunication Development Plan

Telecommunication system will be established in cooperation with telecommunication companies such as Telkom Kenya, Safaricom, and Orange. Telecommunication shall handle the switch station development and wiring works for each tenant. Therefore, the development of telecommunication system in the SEZ will be carried out by telecommunication companies.

Overhead transmission lines could deteriorate the landscape in the SEZ. Therefore, underground telecommunication lines should be installed in the SEZ. Consequently, only the conduit piping system is maintained by the developer side. The wiring in the conduit pipe shall be carried out by the telecommunication companies.

Table 7.5.37: Demarcation Works for Telecommunication System Work Item Responsible Entity Switch Station Telecommunication Companies Telecommunication Line (Trunk Line) Telecommunication Companies Telecommunication Line (Branch Line) Telecommunication Companies Conduit Pipe and Manhole SEZ Developer Source: JICA Study Team (2) Present Status of Telecommunication Network

There is no trunk telecommunications access to the SEZ. The SEZ can only access internet via 3G network.

To provide telecommunications services to the SEZ, telecommunication companies can use fibre optic trunk line or microwave antenna. It depends on the demand of enterprises. Currently, all of the fibre optic backbone supply to Kenya is going through the switch station in Mombasa, such as TEAMS, SEACOM, EASSY, and LION 2.

The transmission capacity depends on the capacity of the trunk line. When the capacity is insufficient, either switch station must be added or the transmission equipment should be upgraded based on the telecommunication demand.

7-78 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (3) Telecommunication Demand Forecast

Telecommunication demand in the SEZ was forecasted based on its sales plan and the existing capacity of industrial parks in surrounding countries. The telecommunication demand forecast for the SEZ is shown in Table 7.5.38.

Table 7.5.38: Telecommunication Demand Forecast Unit Telecommunications Development Area (ha) Population (Residential) Demand Lines Land Use Zone per per Ph.1 Ph.2 Ph. 3 Total Ph.1 Ph.2 Ph. 3 Total Ph.1 Ph.2 Ph. 3 Total ha pop. 1 Port 0.0 66.5 0.0 66.5 4 0 266 0 266 2 Freeport 67.3 9.0 45.3 121.6 4 269 36 181 486 3 Free trade zone 0.0 10.2 23.0 33.2 4 0 41 92 133 4 Industrial park 34.4 65.6 21.6 121.6 2 69 131 43 243 5 MICE area 0.0 2.2 0.0 2.2 50 0 110 0 110 6 Tourism parks 0.0 15.2 34.2 49.4 4 0 61 137 198 7 Service area 2.8 0.0 6.9 9.7 4 11 0 28 39 8 Natural gas power plant 64.0 0.0 0.0 64.0 4 256 0 0 256 9 Transmission line 56.0 0.0 0.0 56.0 0 0 0 0 0 10 Enterprise area (priority) 85.4 113.1 0.0 198.5 4 342 452 0 794 11 Enterprise area (others) 0.0 69.0 60.3 129.3 4 0 276 241 517 Subtotal 309.9 325.4 216.7 852.0 947 1,244 851 3,042 12 Residential area 0.0 4.3 7.0 11.3 0 500 800 1,300 0.2 0 100 160 260 13 Community resettlement 29.2 0.0 0.0 29.2 3,000 0 0 3,000 0.2 600 0 0 600 Subtotal 29.2 4.3 7.0 40.5 3,000 500 800 4,300 600 100 160 860 Mombasa Southern 14 34.0 0.0 0.0 34.0 - Bypass Road 15 Zone connection road/1 13.0 6.0 3.0 22.0 - Utility (SS, utility area 16 18.0 0.0 0.0 18.0 2 36 0 036 1&2) Main drainage network 17 18.6 1.7 5.6 25.9 - area Subtotal 83.6 7.7 8.6 99.9 36 0 0 36 Total 408 380 195 983 3,000 500 800 4,300 1,583 1,445 910 3,938 Source: JICA Survey Team (4) Method of Connection to Tenants

The SEZ can only provide space for the installation of switch station and telecommunications conduits. Industries and businesses will mainly utilise fibre optic cable. Domestic and other users will mainly utilise copper cable. Tenants will select their preferred transmission channel. The system design will be carried out by the telecommunications companies based on the actual needs.

7-79 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

From Telecommunications Companies

Switch Station TENANT 1 TENANT 2 TENANT 3 TENANT 4 TENANT 5 TENANT 6 TENANT 7 TENANT8

TENANT 9 TENANT 10 TENANT 11 TENANT 12 TENANT 13 TENANT 14 TENANT 15 TENANT 16

Legend

Telecommunications cable Terminal box

Source: JICA Study Team Figure 7.5.37: Method of Cable Connection Between Switch Station and Enterprise

(5) Telecommunication Infrastructure Plan

The conduit pipe system, which will consist of conduit pipes and manhole, shall be developed within the SEZ.

1) Conduit Pipe

As shown in Table 7.5.39, conduits (PVC Pipe Φ100) and manholes are required to be installed on each side of the road. Since it is difficult at present to forecast the number of required telecommunication cables, such data will be based on the existing industrial park.

Table 7.5.39: Installed Conduit Pipe Number No. Purpose Number of Pipes 1 Fibre optic cable 3 2 Metallic cable 4 3 Spare 2 Total 9 Source: JICA Study Team 2) Manhole

In order to maintain workability and connection to tenants, manholes will be installed along the conduit pipe. Manholes are to be placed at an interval of less than 300 m along the boundary lines of tenants and road crossings.

3) Telecommunications Conduit Pipe System Plan

The plan of the telecommunications conduit pipe system is shown in Figure 7.5.38. Tenants will be connected to the telecommunication lines via the manholes installed along the main road. It is assumed that the switch station shall be constructed in Utility Area 1 and wiring works shall be implemented between the switch station and each tenant. Total length of the conduit pipe system for the whole SEZ in the three phases is 33,699 m.

7-80 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 7.5.38: Telecommunications Conduit Pipe System Plan

7-81 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (5) Conclusion and Recommendations

1) Conclusion

The required facilities for the telecommunication plan are summarised in Table 7.5.40. Table 7.5.40: Summary of Telecommunication Facilities No. Item Quantity 1 Conduit pipe PVC Pipe φ100 70,586 m (including 9 pipes per m) 2 Manhole 2,353 units 2,160 mm (L) x 1,410 mm (W) x 1,290 mm (D) Source: JICA Study Team 2) Recommendations

The implementation of the following recommendations will be the major basis for the development of an effective telecommunication system: - Underground telecommunication lines will be adopted in the SEZ to preserve its landscape. - The switch station development and wiring works to each tenant will be carried out by telecommunication companies. The SEZ shall only maintain the conduit pipe system. - The SEZ shall prepare a space for installing the switch station in Utility Area. Regular meetings with telecommunication companies regarding the switch station and trunk line will be required during the detailed design stage. - An organisation for operation and maintenance of the conduit pipe system will be established.

7.6 Construction Cost Estimation

7.6.1 Condition of the Estimation

Based on the several conditions listed below, the estimated construction costs have been calculated. Base Year Price of 2014 The unit costs of construction resources were collected from the Mombasa County official rates, several local contractors from June to September 2014, and also referring to other similar projects in Kenya. Price Escalation Based on the trend of price indexes published by the Kenya National Bureau of Statistics (KNBS) and the International Monetary Fund (IMF), price escalation rate in Kenya is calculated at 6.5%, which has been applied to the collected unit price source before 2014. Exchange Rate The exchange rates are set based on the exchange rates announced by JICA in October 2014. USD 1 is equal to KES 88.05.

7.6.2 Construction Cost

The construction cost is divided into four parts as follows:

7-82 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 1) Public (Internal) Infrastructure Public infrastructure includes arterial roads with infrastructure inside the right of way (such as power distribution line, water supply line, etc.) and main drainage. The construction cost for public infrastructure is around USD 50.9 million. 2) Port Two berths will be constructed in the port area. The estimated cost is USD 302.1 million. 3) External Infrastructure External infrastructure means infrastructures that need to be supplied from outside the Dongo Kundu area, which includes (i) power supply transmission line from Rabai Substation and new substation in Dongo Kundu, and (ii) water supply transmission line from Mwache Multipurpose Dam and newly constructed water distribution centre in Dongo Kundu. The estimated cost for external infrastructure is USD 33.6 million.

As public infrastructures, the total of the above 1), 2) and 3) is estimated at USD 386.6 million. The summarised cost estimate is shown in Table 7.6.1. The locations of these public infrastructures are shown in Figure 7.6.1.

4) Zone Development (Excluding Buildings) As shown in Figure 7.6.2, the SEZ was separated into 19 zones for development in three phases, namely: Phase 1 (target year of 2018), Phase 2 (target year of 2025) and Phase 3 (target year of 2030). The total cost for all zone development is estimated at USD 242.8 million. The summary of cost estimate in each zone is shown in Table 7.6.2.

Table 7.6.1: Construction Cost for Public Sector Infrastructures Construction Cost mil. USD I Public Infrastructure 50.9 1 Arterial Road 44.7 Arterial Road Northeast 21.2 Arterial Road Northwest 13.0 Arterial Road South 10.5 2 Main Drainage 6.2 Drainage 1 1.8 Drainage 2 0.7 Drainage 3 0.7 Drainage 4 3.0 II Port 302.1 1 Berth D1 177.2 2 Berth D2 124.9 III External Infrastructure 33.6 1 Power (transmission line and substation) 21.2 2 Water (transmission pipe and distribution centre) 12.4 Subtotal 386.6 Source: JICA Study Team

7-83 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 7.6.2: Summary of Construction Cost by Zone Construction Cost mil. USD Area (ha) USD/m2 IV Zones (excluding buildings) 242.8 376.0 65 1 Freeport/FTZ B 31.8 67.3 47 2 Industrial Park A1 19.4 34.4 56 3 Residential Area A 4.2 10.4 40 4 Residential Area B 3.9 11.4 34 5 Residential Area C 1.8 4.9 37

Phase 1(2018) 6 Residential Area D 1.1 2.4 46 7 Service Area A 1.1 2.8 39 8 Freeport/FTZ C 4.6 9.0 51 9 Freeport/FTZ D1 25.7 10.3 250 10 Industrial Park A2 16.3 23.4 70 11 Industrial Park B1 22.6 42.2 54 12 Residential Area E1 2.1 4.3 49

Phase 2 (2025) 13 Tourism Park 1 &MICE 2.5 15.2 16 14 Freeport/FTZ A 47.3 45.3 104 15 Freeport/FTZ D2 26.4 23.0 115 16 Industrial Park B2 18.4 21.6 85 17 Residential Area E2 3.1 7.0 44 18 Tourism Park 2 1.1 34.2 3

Phase 3 (2030) 19 Service Area B 9.4 6.9 136 Source: JICA Study Team

7-84 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 7.6.1: The SEZ Land Use Plan

7-85 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

⑨ ⑮ ⑲ ③

⑦ ④ ⑤ ⑥ ⑧ ⑭

① ⑯ ⑰ ⑫ ② ⑪ ⑩

⑬ ⑱

Source: JICA Study Team Figure 7.6.2: The SEZ Phased Development Plan

7-86 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

CHAPTER 8 ENVIRONMENTAL AND SOCIAL CONSIDERATIONS

8.1 Overall Progress

The Strategic Environmental Assessment (SEA) for Mombasa SEZ Master Plan has been undertaken in line with the legal requirements1 of Kenya. The specific procedures have been guided by the National Guidelines for SEA (NEMA, 2012) and the Environmental Management and Coordination Act (EMCA) 1999, as well as the JICA Guidelines for Environmental and Social Considerations 2010 (hereafter referred to as “JICA Guidelines”). Upon successful completion of the Validation Meeting, the Final SEA Report was submitted to NEMA and approved on 2nd March 2015. Table 8.1.1 below shows the key milestones of the SEA study process. The sections below summarised the key findings and recommendations of the SEA study. A more detailed output of the SEA study is enclosed in the Appendix II.

Table 8.1.1: Key Milestones of the SEA Study SEA Stage Key Milestones Screening  Project brief for the Master Plan for Mombasa Special Economic Zone submitted and reviewed by NEMA on 17 March 2014.  NEMA advised MOIED to subject the master plan to SEA. Scoping  Public baraza in three locations, interviews and other consultations to identify key issues to be studied further in the detailed study.  Scoping report approved by NEMA on 1 July 2014. Detailed Study  Stakeholder workshop held on 11 September 2014, and stakeholders’ inputs sought for inclusion to the draft SEA report.  NEMA acknowledged the receipt of the draft SEA report on 19 September 2014, which opened the review process. Public Review  NEMA sent draft SEA report to stakeholders to submit their comments on 30 September 2014.  A notice was put in the Kenya Gazette and the newspapers inviting the public to submit their comments. The notice was put on the 27 October and 17 November issues of the Daily Nation newspaper, and on the 21 November issue of Kenya Gazette.  Validation Meeting held on 10 December 2014 upon expiry of the Public Review Period. Submission of  Final SEA report incorporating the discussions at the validation meeting submitted to the Final Report NEMA on 16 December 2014 for approval. Approval  NEMA officially approved the SEA with conditions on 2nd March 2015. Source: JICA Study Team

8.2 Environmental and Social Baselines

The environmental and social baselines of the master plan have documented and analysed through various methods including desk review, flora and fauna survey, marine sediment survey, household survey, and demographic survey. The key findings are summarised below.

1 Regulation 42(1) of Legal Notice 101 of EMCA 1999 requires all public policy, plans, and programmes planned for implementation to undergo the Strategic Environmental Assessment.

8-1 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Environmental Baseline  Shoreline mangrove in the coastal zone of Mombasa SEZ is rich in biodiversity and supports local livelihood through, for example, supply of fuel wood and timber, and provision of ground for artisan fishery and honey production.  The bird survey identified one specie categorised as “Near Threatened” under the International Union for Conservation of Nature (IUCN) Red List, and four species covered by the African Eurasian Water Bird Agreement (AEWA).  Five Kaya forests, namely, Kaya Mrongondoni, Kaya KaMtonwe, Kaya Jiwe Lakutunza, Kaya Gombeni, and Kaya Mhongani, are culturally protected and venerated as centres of worship. They also serve as important reservoirs of biodiversity.  The area is covered by red soil which is prone to soil erosion.

Social Baseline  Dongo Kundu is a rural settlement accommodating 479 households with a total population of 2,5662. The size of households is quite diverse, ranging from 1 to 30, with a mean of 5.5.  The area is served by one dirt road amongst other infrastructure, such as one primary school, one health centre, four mosques, and five churches.  The local community has a strong cultural control based on Kaya Elders System.  Subsistence agriculture is the dominant economic activity in Dongo Kundu with nearly 80% of the population practising it. Crops cultivated in Dongo Kundu include maize cassava, pulses, sweet potato, amongst others. Annual maize yield per household, however, averages only 62.3 kg against a demand of 735 kg3.  Per capital median monthly income is KES 1,0894,5 against the poverty line of KES 1,5626.  Many children drop out of school due to the lack of and/or limited access to school, water, and food. About 83.5% of the respondents obtained primary education or below.

2 The figure is based on the demographic survey conducted as part of the SEA study. It is noted, however that settlers of structures whose owners were not confirmed during the survey period were excluded. The total population is likely to fluctuate seasonally since some settlers only stay in Dongo Kundu during cropping season (mainly in April-May and August - September and occasionally from June to July). 3 With a national per capita maize consumption averaging 98 kg (FAO, 2011) and the average family size of 7.5 people (based on a sample of 151 households), households in Dongo Kundu would require 735 kg of maize annually. 4 The result is based on the questionnaire survey targeting randomly-selected 151 households. 5 It is calculated including child population. 6 For rural areas, the Kenya National Bureau of Statistics, basic report on well-being in Kenya based on Kenya Integrated Household Budget Survey- 2005/06, 2007. Considering the high inflation rates in the last few years in Kenya, the poverty line at the time of this survey could be higher.

8-2 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Shoreline mangroves Red soil (vulnerable to erosion)

Natural spring within Kaya Mrongondoni Poor maize crop (pale green) (source of freshwater)

Mosque Typical housing found in Dongo Kundu Source: JICA Study Team Figure 8.2.1: Social and Environmental Baseline in Dongo Kundu

8.3 Alternative Analysis for Detailed Land Use

In the detailed SEA study, the master plan has undertaken further analysis of alternatives for the detailed land use plan targeting the selected grand plan of “Moderate Development of Mombasa SEZ”, which is the output of the preliminary analysis of alternatives during the scoping stage.7

Two alternative land use plans for the master plan were considered for the grand plan of “Moderate Development of Mombasa SEZ”, as shown in Table 8.3.1, and illustrated in

7 Three alternatives of 1) Zero–Option (do nothing), 2) Moderate Development of Mombasa SEZ, and 3) Extensive Development of Mombasa SEZ are proposed and analysed during the scoping process.

8-3 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Figure 8.3.1 and Figure 8.3.2. Land use alternatives are evaluated by four evaluation criteria: (1) development scale, (2) technical aspects, (3) environmental impact, and (4) social impact. As summarised in Table 8.3.1, land use plan 1 is evaluated as the preferable plan while land use plan 2 should be abandoned due to several disadvantageous evaluations.

Table 8.3.1: Comparison of Land Use Plan Item Land Use Plan 1 Land Use Plan 2 Project Land use Various land use functions are To cope with the strong demand for logistics activity, Summary function introduced as the modern SEZ in the expansion of free trade zone is additionally proposed Dongo Kundu area. as the alternative plan. Land Some flatland, hilltop, and valley Only hilly topography area is left for the additional free formulation bottom will be limitedly developed to trade zone. method avoid large cut and filling earthworks. Project Development Less developed area as Disadva Freeport/free trade zone of 61 ha will be Advant Effect scale shown in Table 8.3.2. ntaged added, while the total reserve area will aged decrease as shown in Table 8.3.2. Technical Earthworks 1.7 million m3 of earthworks Advant Additional 3 million m3 earth works will be Disadva Aspects volume will be necessary to aged necessary to formulate extra 61 ha of the free ntaged formulate the freeport/free trade zone. trade zone A/B/C. Earthworks volume will be minimised. Cost The construction cost to Advant The large-scale earth work volume makes the Disadva reclaim the land including the aged land price costly. ntaged earth work can be minimised so as to keep the competitiveness compared with the land price in the Mombasa inland area. Environ- Environmental  Ecosystems in Dongo Advant  Reserve green area will be decreased. Disadva mental impact Kundu area will be more aged  A larger volume of borrow fill materials to ntaged and Social preserved because the be transported from the outside of Dongo Considerat preserved area is larger Kundu area will be required. It would ions than the one of land use cause a significant environmental burden plan 2. to the borrow pit site. The impact of  The land reclamation long-distance transportation of filling works will be minimised material also needs to be considered. by balancing cut and fill  The drainage load from Enterprise Area A works within each will increase because of lower infiltration development phase’s area capacity of rainfall due to higher surface so that the impact on coverage for the flat reclaimed land. natural environment such  The design of drainage system in as topography, Enterprise Area A for this land use plan is geographical features, and not provided as of this master plan stage hydrological situation can because it depends on the enterprise or be limited. developer investing in this area. Thus, the  Since the drainage system uncontrolled outflow of stormwater from for Enterprise Area A is the basin might cause river bed erosion, designed in the scope of hydrological impact on receiver, etc. the master plan, stormwater from the basin and its flow will be well controlled. Social impact  It is estimated that the Advant  It is estimated that the number of total Disadva number of total affected aged affected people would increase compared ntaged people would be less than with land use plan 1. the one of land use plan 2  The social impact on the local because the developed area communities caused by relocation will is smaller. increase accordingly.

8-4 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Item Land Use Plan 1 Land Use Plan 2 Proposed Optimum Plan and Recommended Not Recommended Reason The larger reserved area and limited The large-scale earthworks would cause various social environmental and social impacts are and environmental impacts. prioritised over the development scale of the Dongo Kundu area, taking into consideration the various factors including cost impact. Source: JICA Study Team

Table 8.3.2: Comparison of Land Use Area by Alternative Plan

(unit; ha) Alternative 1 Alternative 2 Difference 1Port 66 66 0 2 Free Port / Free Trade Zone A/B/C 122 183 61 3 Free Port / Free Trade Zone D 33 33 0 4 Industrial Parks 122 122 0 5 Mscellaneous Zone*1 73 73 0 6 Power Plant 120 120 0 7 Enterprise Area A/B/C 198 173 -25 8 Enterprise Area (Others) 129 127 -2 9 Residential Area A/B/C/D 29 29 0 10 Infrastructure / Utility *2 40 40 0 *3 11 Others (Reserve Area, etc.) 360 326 -34 TOTAL 1,292 1,292 *1 Residential Area, Tourism Parks, MICE and Service Area *2 Road and utilities such as electrics substation, water reserve, etc (not including public drainage) *3 Including public drainage system and its buffer area Source: JICA Study Team

8-5 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 8.3.1: Land Use Plan 1

8-6 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source: JICA Study Team Figure 8.3.2: Land Use Plan 2

8-7 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 8.4 Potential Environmental and Social Impacts

The environmentally and socially sensitive issues identified in the scoping matrix (refer to Appendix A.2.1) were further studied during the detailed SEA stage. Those likely impacts were assessed against the selected land use plan 1, and the key findings are presented below and summarised in Table 8.4.1.

Land and People

Food insecurity and poverty are persistent problems for most residents of Dongo Kundu. While the implementation of the master plan will curtail community access to land and the shoreline for which they depend on their livelihood in the short term, Mombasa SEZ will offer options of alternative livelihood beyond subsistence agriculture. The master plan also includes the option of internal resettlement with supply of basic infrastructure, which will improve the well-being of the community in the long term.

The proposed master plan provides an opportunity to break the cycle of poverty by creating jobs. However, the local labour force is generally non-skilled and thus inadequacy of skills could pose huge barriers to locals trying to access jobs and opportunities in the SEZ. In the incidence where jobs appear to be taken by foreigners, the sentiment of isolation could trigger resentment and thus undermine the very stability required to inspire confidence in potential investors.

Environmental Sensitivity

The mangrove forests already show signs of degradation due to human activities, and the development of the Dongo Kundu area could accelerate the trend unless a sound environmental management and monitoring framework is put in place. The construction and operation of the road and port facilities could also result in introduction of invasive species which pose threat to the local ecosystem. While an individual environmental impact assessment (EIA) will articulate the manner of handling solid waste and effluents associated with activities by each enterprise, the cumulative nature of such impacts and the nature of the coastline ecosystem points to the need of establishing the framework of regulating and managing SEZ-wide cumulative impacts in an integrated manner.

Five Kaya forests, currently preserved under cultural control, are rich sources of terrestrial floral biodiversity. The sanctuary of Kaya forests and its cultural value shall be considered in the course of implementation of subprojects. The master plan has already been guided by the principle of preserving five Kaya forests and thus these Kaya forests remain off-limits to development activities in the proposed land use plan.

8-8 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Provision of Water

The recently-concluded National Water Master Plan projected that growing water demand in South Coast could lead to water scarcity situation by 2030. The World Bank-funded Mwache Dam Project is scheduled to be completed before the operation of the SEZ with sufficient capacity of meeting the projected demand of Mombasa SEZ, which is estimated to be 31,500 m3 per day at the full operation in 2030. The delay of the project may force water demand from Mombasa SEZ to be covered by other, non-sustainable sources, potentially aggravating water scarcity in the area. Therefore, the progress of the dam project needs to be closely monitored and aligned with the development of Mombasa SEZ.

Induced Impacts

Operation of Mombasa SEZ would likely trigger the influx of population seeking employment and accommodation that will rapidly increase the demand for services such as water and sanitation, schools, healthcare, and transport. All of these have potential to impact areas far beyond the borders of the master plan. While this could create job opportunities for residents of Kwale and promote economic growth, it could also bring unanticipated burden to Kwale County, which will inevitably assume responsibility to provide infrastructure and other budgetary requirements associated with the induced development. A dialogue has already been initiated between Mombasa and Kwale counties to explore options to address the challenge, including establishing residential areas for workers in areas of Kwale County adjoining the SEZ.

Table 8.4.1: Summary of Predicted Impacts Category Potential Impact Potential positive impact - Injection of cash into the local economy - Foreign earnings from exports and tourism - Expansion of the job market - Spin-off benefits such as real estate and services sector - Ready market for local goods and services - Benefits to the local community (housing, social amenities, and infrastructure) Potential negative impact on natural - Accelerated degradation and habitat loss in fragile ecosystems: intertidal environment zone, mangroves, seabed. - Ambient pollution caused by construction work and operation of tenants: air quality, noise levels, etc. Potential impact on strategic - Displacement impacts from land, livelihood, and shelter resources - Impacts on the youth and labour force - Impacts on regional stability - Pressure on water, energy, sanitary treatment, etc. - Impacts on water receiver in Port Reitz Creek and its affected environment - Impacts on wider environment Potential negative impact on other - Displacement from land and livelihood social environment - Breakdown of the social-cultural control systems and loss of heritage - Difficulty of access to Kaya - Disruption of access to amenities: schools, mosques, churches, water supply, medical care, GOK services, etc. - Impacts on vulnerable groups: the aged, the extremely poor, orphans, physically challenged, health compromised, etc.

8-9 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Category Potential Impact - Culture shock - Inadequacy of skilled labour in the receiving area Source: JICA Study Team

8.5 Mitigation Measures

The mitigation measures for the site-specific or project-specific adverse impacts will be elaborated in the subsequent EIA studies to be carried out by the developer and/or enterprise investing in the Dongo Kundu area. On the other hand, the broad-based mitigation measures for the whole Dongo Kundu area, as summarised in Table 8.5.1, will be required taking into account resettlement issues, environmental management for the entire area, and sustainable development of Mombasa SEZ and the Dongo Kundu area.

Table 8.5.1: Summary of Mitigation Measures Category Suggested Mitigation Measures Natural environment - Optimisation of construction method, device, and schedule etc. - Enhancement of compensatory conservation in the Mangrove Reforestation Plan - Environmental management plan at the basin level or in the entire area of Dongo Kundu - Introduction of cleaner production system - Pollution control of emission and effluents by enterprise - Efficient energy use in the Dongo Kundu area - Others Livelihood and social - Develop resettlement action plan (RAP) including the livelihood restoration plan environment to resolve lost access to land, livelihood, and community assets - RAP should be synchronised with the ones for the bypass road, port development plan, and other projects in Dongo Kundu to avoid incidence of speculators and multiple compensation - RAP should not be pegged to the availability of investors - Need for a social rehabilitation programme to safeguard cultural and social norms, social services and amenities, etc. It is suggested that people be resettled keeping their linkage with local community to retain social control systems - Need for affirmative action includes: Open up participation to local people with priority to local community groups Skills upgrading programme Simultaneous capacity building for local production - Others Strategic resources - Need to deal with wider beneficiaries including the relevant area out of the SEZ - Coordination with related master plans, and supervision by the county government and other stakeholders in charge - Information sharing and frequent consultation amongst related agencies and projects - Development and utilisation of alternatives of water supply and other infrastructure services, as needed - Others Source: JICA Study Team

8.6 Framework for Environmental and Social Management

1) Institutional Arrangement

In terms of each project-level activity, a project proponent is wholly responsible for the implementation of the project. At the pre-construction stage, a construction contractor has the role of undertaking environmental and social considerations as stipulated in the EIA prepared by the project proponent. In this stage, environmental and social monitoring is to be carried

8-10 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report out by the construction contractor and reported to the responsible authority by the project proponent.

During the operation stage, the environmental audit system assumes the role of environmental performance management. Monitoring will rely on standards specified by NEMA Legal Notices 120, 121, Guidelines for Ambient Noise Levels and Air Quality Guidelines, and other relevant sectoral standards. Environmental inspectors specified by EMCA may carry out environmental inspection of the project activities and monitor compliance with the environmental standards.

At the time of the SEA approval (2nd March 2015), SEZ bill was still waiting for its enactment. Therefore, the institutional framework to manage the wider zone and/or the entire Mombasa SEZ could not be finalised As such, the proposed institutional arrangement for environmental management for Mombasa SEZ provided below is subject to modification based on the final SEZ Bill as well as the results of the ongoing review of EMCA 1999 to align it to the requirements of the National Constitution 2010.

- It is expected that the institutional arrangement for environmental management will be provided by the SEZ developer.

- It is recommended that the SEZ developer shall establish an environmental management unit or function to take charge of the management and monitoring of environmental performance in both the SEZ area and non-SEZ area. Furthermore, the environmental unit of the SEZ developer is expected to establish their own monitoring system to cover the entire Dongo Kundu area for purposes of periodic and ambient monitoring in close consultation with NEMA and each enterprise. Compliance with environmental regulations is required for all enterprises investing in the Dongo Kundu area. The criteria or requirements of pollution control should be clarified in the bidding documents for selecting the developer or lease contract to be made with the developer/enterprises. In that regard, the internal regulation for Mombasa SEZ/ Dongo Kundu area can and should provide coherent standards for sound environmental management.

2) Management and Monitoring Framework

The Environmental and Social Management Plan (ESMP) outlines the measures to be taken during the subsequent project implementation. It is important for the SEA of the Master Plan to ensure that the assessment results and suggestions raised here are reflected at the project-level EIA and implementation of other related plans/programs/projects for sustainable development of the coastal area of Kenya, in general, and Mombasa SEZ, in particular.

Regarding the mitigation measures discussed above, measures for site-specific impact will be planned in the EIA process and elaborated in the Construction Environmental Management

8-11 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Plan, which will be prepared for the project’s final design. The contractor follows the Construction Environmental Management Plan and implements the construction activities supervised by the project proponent and implementation consultant. Recommendations in the SEA should serve as a framework that guides the implementation of specific measures to ensure sustainable and inclusive development of the Dongo Kundu area.

The considerations for the people whose assets and livelihood will be affected by the Master Plan need to be addressed in the Resettlement Action Plan (RAP) for the entire Mombasa SEZ area based on the findings in this SEA. The Kenya Ports Authority (KPA), the land owner of the whole area and potential developer, has already initiated the process of preparing the RAP for Dongo Kundu, in consultation with other key stakeholders. The operation stage requires continual measures and a periodical monitoring system, which are managed by the environmental audit and requirements specified in the EIA. The tenant firm is required to establish an internal environmental management system and reporting system to encourage its compliance with the Environmental (Impact Assessment and Audit) Regulations under EMCA 1999.

On the other hand, site-specific measures may fall short of conserving sensitive natural resources, such as mangrove ecosystem. Therefore, coordinated efforts for integrated coastal zone management will also be crucial. For that purpose, a management plan for rehabilitation and sustainable utilisation of mangrove needs to be established by the leading agency and stakeholders. Its institutional framework shall be considered and it is expected to involve Kenya Forest Service (KFS), Kenya Wildlife Service (KWS), Kenya Marine and Fisheries Research Institute (KMFRI), Beach Management Units, amongst others.

8.7 Stakeholder Engagement

Consultation with stakeholders is one of the key elements of this SEA. Consistent efforts have been made to engage all stakeholders ranging from informal settlers and artisan fishermen in Dongo Kundu to officials from central and county governments during all stages of the SEA study. As summarised in Table 8.7.1, a diverse form of stakeholder engagement has been used to cater the different needs and availability of stakeholders, including public barazas, key informant interviews, and stakeholder meetings. The iterative consultations culminated a Validation Meeting on 10 December 2014, where stakeholders are invited mainly to validate the comments and views made by the various stakeholders that have been incorporated in the SEA.

8-12 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table 8.7.1: Summary of Stakeholder Consultations and Information Disclosure SEA Stages Consultations and Information Disclosure Scoping  3 public barazas with attendance of over 900 locals in total  16 one-on-one discussions  2 seminar discussions Detailed SEA  Public baraza for Dongo Kundu residents to discuss issues on land  12 key informant interviews including one with Kaya elders  Stakeholders meeting on 10 September 2014 with over 50 participants Public Review  The Draft SEA Report was advertised twice in the Daily Nation (on 27 October and 17 November 2014), and a similar notice was placed in the Kenya Gazette issued on 21 November 2014  The Draft SEA Report underwent the mandatory 30-day public review process, which started on 27 October 2014 and ended on 5 December 2014.  A soft copy of the Draft SEA Report was shared with all stakeholders who attended the Stakeholders Meeting  A Kiswahili version of the SEA Executive Summary was disseminated amongst Dongo Kundu villagers Source: JICA Study Team

The analysis of the SEA presented in the above sections resonated well with stakeholders concerns and interests as they centre on the issues on land and resettlement, induced impacts, and provision of water and other infrastructure/utilities. Key concerns raised by stakeholders in the course of the SEA were confirmed at the validation meeting, in which measures for addressing them were also validated by the participants as summarised in Table 8.7.2. The Validation Meeting concluded with a consensus that the process was comprehensive and that the study met the requisite thresholds for quality.

Table 8.7.2: Response to the Major Concerns from Stakeholders Key Concerns Raised by Stakeholders Response/Measures Validated at the Validation Meeting

Pollutants from LNG plant may interfere with These issues will be examined during EIA for the LNG the flight path to/from Mombasa airport. plant.

Cooling Plant in LNG may cause degradation of coastal environment.

Stakeholders who attend SHMs should be Stakeholders who attended the consultation meeting at the consistent to ensure continuity and effectiveness detailed SEA stage were invited to the validation meeting. A of consultation process. brief information kit for SEZ and SEA was also attached to the invitation to inform participants in advance.

Likely environmental impacts identified in this A generic ESMP has been prepared in the SEA, which SEA needs to be assessed further at EIA/IEE provides the overall environmental management framework stage. for SEZ as well as guides the specific EIA/IEE process.

Infrastructure for waste treatment needs to be The SEZ is located within the jurisdiction of Mombasa, and planned in MP as such, the matter will be taken up in the process of developing MP for Mombasa Gate City.

There is a risk of introduction of alien species The port operation should adhere to the relevant IMO from ballast water conventions including; MARPO, Dumping Convention, Ballast Water Convention and the Draft Marine Pollution Bill

Success of SEZ hinges on investor confidence The SEA highlighted that restoring/improving local which could be eroded by insecurity livelihood will be critical for maintaining stability and avoiding tensions/conflict. Specific options for livelihood restoration/improvement will be explored in RAP.

There is a mandatory process/procedure for The entire SEA process has been anchored in EMCA 1999,

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undertaking SEA in Kenya, its tools and the SEA guidelines, and satisfied requirements as shown in Table 8.1.1.

Assessment of GHG emissions volume from the It has not been carried out during SEA because the details of SEZ economic activities to take place in SEZ are yet to be finalised and thus the volume of GHG emissions cannot be estimated. Source: JICA Study Team

8.8 Recommendations of the SEA

This SEA observes that the proposed Master Plan for Mombasa SEZ offers significant opportunities for growth. It attracts foreign direct investment (FDI), manufactured exports, and creates employment, which are the recipe for new and accelerated economic growth. Having said that, the SEA has identified several areas where measures need to be put in place to improve the sustainability and social acceptability of the Master Plan. Key recommendations include the following:

Resolution of resettlement issue: There is a need for a coordinated and comprehensive RAP to ensure that the challenge pertaining to involuntary resettlement in Dongo Kundu can be addressed at once. The comprehensive RAP for Dongo Kundu will prevent project affected persons (PAPs) to be left uncompensated or compensated more than once. At the same time, it will reduce the burden for PAPs – transaction cost to participate in redundant surveys, attending consultations, amongst others – and avoid unnecessary confusion. In addition, this will avoid creating a source of potential conflict which may be created due to different levels/forms of compensation in different projects. In the development of RAP, it is noted that the period of census and inventory survey for RAP should pay sufficient attention to seasonal fluctuation of the number of settlers in the Dongo Kundu area.

Adaptive environmental management: An ESMP has been developed based on the analysis on impacts in different stages of the Master Plan and provides a framework for the management of likely environmental and social impacts on key resources. The Master Plan should take adaptive approach in environmental management. In addition to environmental changes over time, the development of Mombasa SEZ will trigger significant shift in socioeconomic conditions, leading to changes in stakeholders’ interests, concerns, and aspirations. The implementation of the Master Plan should take advantage of its phased approach so that the ESMP can be adjusted and updated periodically; thereby ensuring that the development outcome be in line with the interests of the stakeholders involved.

Inclusive development of the SEZ: In the incidence where jobs appear to be taken by foreigners, the sentiment of isolation could trigger resentment among the locals and thus undermine the very stability required to inspire confidence in potential investors. A skills development program should be adopted and implemented by stakeholders within and outside

8-14 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report of the Master Plan so as to enhance the participation of the local community to the job market to be created by the SEZ.

Management of induced development impacts: Implementation of the Master Plan will create significant demands for services and commodities in areas far beyond the physical boundaries of the SEZ. The Master Plan and this SEA create an opportunity for the county government to identify such requirements early enough and start planning for likely impacts in the future. The FDI inflow and the presence of environmentally- and socially-minded private sector firms in the Dongo Kundu area, for example, may create opportunity to address some of the challenges in partnership with the private sector. The Mombasa County Integrated Development Plan which is under preparation with support of JICA, also offers valuable opportunity to integrate SEA’s recommendations into a wider city and regional planning beyond the zone boundaries. Continued coordination between the Master Plan process and county governments of Mombasa and Kwale is therefore imperative for sustainable and inclusive development of Mombasa SEZ.

Coordination with other ongoing initiatives: The need for the Master Plan to support other initiatives such as the proposed Mwache Dam Project, the upcoming Mombasa Gate City Master Plan, the JICA-funded Southern Bypass Road Project, amongst others, whose successful implementation is crucial to the realisation of Mombasa SEZ.

Need of continued engagement of stakeholders: Certain measures such as capacity building, community mobilisation to support RAP, amongst others require collaboration of multiple stakeholders, and thus it is imperative that all stakeholders play respective roles for the realisation of the goals of the Master Plan. One of the key messages emerged from the Validation Meeting was that the Master Plan is a collective undertaking of all parties involved.

8-15 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

CHAPTER 9 THE IMPLEMENTATION PLAN AND PROPOSED MANAGEMENT FRAMEWORK

9.1 Implementation Plan

9.1.1 Implementation Structure

(1) Proposed Implementation Structure

The implementation structure for the development of the SEZ is proposed to be implemented as shown in Figure 9.1.1 and based on the following considerations:

1) No one single SEZ developer can implement the SEZ development programme due to large size of the area; 2) It is necessary to maximize the value of Government land in order to accelerate the project’s implementation and thereby create value addition to the investor (SEZ developers and SEZ enterprises); 3) The land owner can become a SEZ developer and/or become a Contracted Authority by leasing or selling the land to the SEZ developer that has been selected through PPP tendering process; and 4) Private entities with requisite knowhow and experience in attracting preferred industries as well as in the infrastructure development projects should be encouraged to participate in the project as SEZ developers.

(2) Development Area Classification and SEZ Developers

In this proposed implementation structure, the development area is classified into Category A and B areas.

1) Priority Development Area (Category A Area)

Strong lead by the Government of Kenya is required to initiate the SEZ project in Dongo Kundu. Although the first industrial development plan of this area came in 1989, no one achieved a ground breaking up to present. The attractiveness for private entities to lead the industrial development in this area is subtle considering that development has to start from basic infrastructures in order to attract enterprises. In addition, development of supporting infrastructure only is not enough at the early stage. In many cases, private investors demand government for more commitments into industrial zone developments. Especially in Dongo Kundu, the cost of land reclamation is relatively high compared to other flat land. Private entities tend to be more risk averse to new and high cost investments. They can enter after the set up of basic infrastructures and witnessing engagements of some key tenants.

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Therefore, the priority development area, which is referred to as Category A area, is proposed to be developed by the Government to receive fast track investor. This area aims to attract major international or national companies and/or major industry sector companies as SEZ enterprises, which will bring the value addition to the economy of Kenya as well as the SEZ. From the viewpoint of Kenya’s future economic development, attracting such companies will also promote the development of advanced industries as well as logistics and trading.

PPP Project for Mombasa SEZ Development Land Owner [Contracting Private Investor(s) [PPP Agreement] Authority]

Category A Area Category B Area (fast track development area) (other area)

E E E E E E E E E E E E E E E E E E

SEZ Enterprises SEZ Enterprises SEZ Enterprises SEZ Enterprises SEZ Enterprises SEZ Enterprises

Legend by [Contracting Authority] by a private party shall be selected by PPP Note: Terms in [ ] are defined by the PPP Act

Source: JICA Study Team Figure 9.1.1: Proposed Implementation Structure for the SEZ Development

2) Other Areas (Category B Area)

Selection of Category A area shall consider the requirement of fast track investor and their financial impact. Tentatively the area beside the port and Southern By-pass road are recommended to be developed, and it will be finally defined during the feasibility study.

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Category A Area

Source: JICA Study Team Figure 9.1.2: Tentative Proposed Area for Category A Development

SEZ Developer for the Category A Area

1) Land owner appointed by the Government of Kenya will become SEZ developer. It is proposed that the state organization which substantially has ownership of the land become SEZ developer as illustrated for Category A area in Figure 9.1.1.

2) Land owner will be necessary to establish a company incorporated in Kenya for the purpose of undertaking SEZ activities as stipulated in the SEZ Bill, if the qualification of SEZ developer will be enacted as the bill.

SEZ Developer for the Category B Area

1) It is proposed that development of the Category B area should be executed under the PPP agreement. The successful bidder needs to set up a company incorporated in Kenya aimed at executing the awarded contract for public private partnership, which is referred to as SPV under the PPP Act.

2) There are two types of SPV for Category B area. The first type is SPV established as a joint venture of private firm(s) and the land owner referred to as Contracting Authority under the PPP Act (see Area B1 in Figure 9.1.1). This type of SPV will use the land lot to be supplied by the Contracting Authority for equity participation.

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report The second type is SPV established only by private firm(s) (see Area B2 in Figure 9.1.1). This type of SPV will lease the land lot from the Contracting Authority.

9.1.2 Implementation Schedule

The implementation schedule is proposed as Figure 9.1.3 in conformity with the strong requests from the Government of Kenya to launch the SEZ (Phase 1) by 2018. Work items or activities of the schedule are sorted by responsible organization.

The target year 2018 is a big challenge in terms of time constraints, since there are many difficult issues in both institutional arrangement and infrastructure development.

Ministry of Industrialization and Enterprise Development (MOIED)

In terms of institutional arrangement, work items and activities of the MOIED are key issues for development of the SEZ within the time schedule. Such work items and activities are approval of the SEZ Act by Parliament; preparing SEZ regulations before establishment of SEZA, establishment of the SEZA, and conducting a feasibility study for Public-Private Partnerships (PPPs).

Special Economic Zones Authority (SEZA)

The SEZA will follow up with the regulations of the enacted SEZ Act once it is established. Then, a One Stop Centre will be formulated under the SEZA organization. SEZA will be the licensing authority to grant licenses to SEZ Developers and SEZ Enterprises.

Relevant Authorities for Public Infrastructure

Development of public infrastructures (e.g. port, road, water and power supply) is important in order to attract investors into the SEZ. Those public infrastructures shall be developed by relevant government authorities for each sector, such as KPA for port, City County for water, and MOEP for power supply. In addition, completion of the port construction is a crucial issue, since the proximity to port creates the charm of the SEZ at Dongo Kundu in Mombasa.

Category A Area SEZ Developer (SPV)

SPV will be established by the government to be involved in the development of Category A zone infrastructures. The organization is required to be set up in the timely manner to realize the opening of SEZ in the year 2018.

Category B Area SEZ Developer

Developers for the Category B can only commence its development work on site after its licenses has been granted by the SEZA. Before that, the developer can establish is organization and formulate its internal operational rules and procedures.

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

2015 2016 2017 2018 2019 2020 2021 2022 work item 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 I II III IV I II III IV I II III IV I II III IV I II III IV

A1 SEZ Act (SEZ Bill enactment by Parliament)

MOIED - Evaluation - Negotiation - Cabinet approval for the memorandum B3 Declaration of Mombasa SEZ B4 Establishment of SEZA - Preparatory works - Establishment of SEZA

C1 Formulation of SEZ Regulation and Negative List - Preparatory works - Recommendation to MOIED-CS - MOIED-CS approval for SEZ Regulation C2 Establishment of One Stop Centre

SEZ DeveloperSEZ - Contractor Procurement Category B Area - Construction Works

F1 Development of Port and Facilities - Procurement approvals - Study - Design Works - Contractor Procurement Public Infrastructure Public Relevant Authorities Relevant - Construction Works

Source: JICA Study Team Note: This is subject to on-going Parliamentary process! Figure 9.1.3: Proposed Implementation Schedule 9-5

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 9.2 Economic Analysis

9.2.1 Objective of Economic Analysis

9.2.2 Conditions

(1) Payback Period

The project life is analyzed to be 30 years from 2018 as (year 0) to 2048 as (year 30) in the cash flow analysis considering the life span of the industrial park development.

(2) Exchange Rate

The exchange rates are set based on the mean rate of 29th May 2015 announced by the Central Bank of Kenya. 1 USD is equivalent to KES 97.78.

(3) Physical Contingency

The construction cost reflects the physical contingency at 10% in order to buffer the expected modifications of the master plan and the changes of external conditions.

9.2.3 Project Implementation Costs

The project implementation cost accounts for the construction costs of zone developments and their supporting infrastructure as well as expected costs for land compensation.

Table 9.2.1: Breakdown of the Project Implementation Costs (1) Zone Development  Port (Berth D1, D2)  Freeport/Free Trade Zone (A, B, C, D)  Industrial Park (A, B)  Residential Area (A, B, C, D)  Real Estate Area  Service Area (A, B)  Tourism Park (1, 2)  MICE Zone (2) Supporting Infrastructures  Arterial Road (Northeast, Northwest, South)  Drainage (1, 2, 3, 4)  Power (Transmission Line and Sub-Station)  Water (Transmission Pipe and Distribution Centre) (3) Land Compensation  Compensation Fee Source: JICA Study Team 9.2.4 Potential Benefits of the SEZ Development

The SEZ will diversify the current industrial base in Kenya by attracting new business and firms into the country while also creating new employment and empowering local industrial human resource skills. The direct benefits generated from the SEZ development will be calculated as the product of the number of the entering enterprises and the annual domestic

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report expenditure of firms within the SEZ. The annual domestic expenditure of SEZ enterprises includes annual earnings of a worker and other domestic expenditures including local purchases, power, telecommunication, water and others. The annual earning of a worker is extracted from the manufacturing worker’s minimum wage scheduled in the Regulation of Wages Order in Kenya. Other annual domestic expenditures by an SEZ enterprise is attained based on the average annual manufacturing enterprise domestic expenditures listed in the Export Processing Zone (EPZ) annual report 2013. Moreover, the expected benefit of the “without-project” must be subtracted from the benefit of the SEZ development (“with-project”) to capture the precise benefit of SEZ development project. In other words, the benefit from the “without-project” is an opportunity cost of implementing the SEZ development. In the ‘without-project case’, the local residents within Dongo Kundu continue to gain from agriculture. The total earnings within Dongo Kundu in 2014 surveyed through the Strategic Environmental Assessment are used for calculations while the population of Dongo Kundu is estimated to grow at the same rate as the national population.

9.2.5 Annual Benefit and Cost from Project Implementation

The annual benefit and cost of the “with-project” case is summarised in Table 9.2.2.

Table 9.2.2: Project Implementation Schedule Construction Benefit Year Phase Schedule Accruement 0 2018 30% of Phase 1 0 1 2019 30% of Phase 1 0 2 2020 Phase 1 Open 40% of Phase 1 0 3 2021 0 20% of Phase 1 4 2022 0 40% of Phase 1 5 2023 0 60% of Phase 1 6 2024 0 80% of Phase 1 7 2025 30% of Phase 2 100% of Phase 1 8 2026 30% of Phase 2 100% of Phase 1 9 2027 Phase 2 Open 40% of Phase 2 100% of Phase 1 + 20% of Phase 2 10 2028 0 100% of Phase 1 + 40% of Phase 2 11 2029 0 100% of Phase 1 + 60% of Phase 2 12 2030 30% of Phase 3 100% of Phase 1 + 80% of Phase 2 13 2031 30% of Phase 3 100% of Phase 1 + 100% of Phase 2 14 2032 Phase 3 Open 40% of Phase 3 100% of Phases 1 and 2 + 20% of Phase 3 15 2033 0 100% of Phases 1 and 2 + 40% of Phase 3 16 2034 0 100% of Phases 1 and 2 + 60% of Phase 3 17 2035 0 100% of Phases 1 and 2 + 80% of Phase 3 18 2036 0 100% of Phases 1 and 2 + 100% of Phase 3 19 2037 0 100% of All Phases 20 2038 0 100% of All Phases 21 2039 0 100% of All Phases 22 2040 0 100% of All Phases 23 2041 0 100% of All Phases 24 2042 0 100% of All Phases 25 2043 0 100% of All Phases 26 2044 0 100% of All Phases 9-7

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Construction Benefit Year Phase Schedule Accruement 27 2045 0 100% of All Phases 28 2046 0 100% of All Phases 29 2047 0 100% of All Phases 30 2048 0 100% of All Phases Source: JICA Study Team 9.2.6 Results of the Economic Analysis

Table 9.2.3 here below shows the projected cash flow from the project. Table 9.2.3: Project Economic Cash Flow (USD million) Year Construction Cost Benefit Balance 0 2018 50.6 0.0 -50.6 1 2019 50.6 0.0 -50.6 2 2020 67.4 0.0 -67.4 3 2021 0.0 31.6 31.6 4 2022 0.0 64.5 64.5 5 2023 0.0 97.3 97.3 6 2024 0.0 130.1 130.1 7 2025 124.1 163.0 38.9 8 2026 124.1 162.9 38.8 9 2027 165.5 198.6 33.1 10 2028 0.0 234.3 234.3 11 2029 0.0 270.0 270.0 12 2030 34.8 305.7 270.9 13 2031 34.8 341.4 306.6 14 2032 46.4 382.2 335.8 15 2033 0.0 423.0 423.0 16 2034 0.0 463.8 463.8 17 2035 0.0 504.6 504.6 18 2036 0.0 545.5 545.5 19 2037 0.0 545.4 545.4 20 2038 0.0 545.4 545.4 21 2039 0.0 545.3 545.3 22 2040 0.0 545.3 545.3 23 2041 0.0 545.2 545.2 24 2042 0.0 545.1 545.1 25 2043 0.0 545.1 545.1 26 2044 0.0 545.0 545.0 27 2045 0.0 545.0 545.0 28 2046 0.0 544.9 544.9 29 2047 0.0 544.8 544.8 30 2048 0.0 544.8 544.8 Total 698.3 10,859.8 10,161.5 NPV (at 9%) 364.9 2,113.9 1,748.98 Source: JICA Study Team

The economic internal rate of return (EIRR), benefit-cost ratio (B/C) and the net present value of the benefit-cost balance (NPV) of the whole project duration are calculated with the NPV discounted at 9.0%, which is the 2014 average of Kenya’s 91-day Treasury Bill interest rate.

Table 9.2.4: Results of the Economic Cash Flow Analysis EIRR (%) B/C NPV (USD million) 37.94 5.79 1,748.98 Source: JICA Study Team 9-8

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 9.3 Financial Analysis

9.3.1 Objective of the Financial Analysis

The objective of the financial analysis is to assess the financial viability of the project owner over the course of realizing the master plan. The analysis evaluates the project in terms of financial aspects by calculating the net present value (NPV) and internal rate of return (IRR) in discounted cash flow analysis.

9.3.2 Financial Viability

The calculation is made based on the assumption that the SPV/Contracting Authority is a sole developer and prepares the entire infrastructure as well as the land. This is because the size of category A and category B are still undecided until the commencement of further feasibility study. However, the cost for port, power, and water will be excluded from the financial burden of the SPV/Contracting Authority since these costs will be covered by revenue incurred by operating these facilities. In this case, the cost of SEZ developer includes the cost for building supporting infrastructure such as road networks and drainage, and also conducting land preparation of each zone. Consequently, the construction cost of these supporting infrastructures and land preparations are required to be covered by the lease of the land to SEZ enterprises. Table 9.3.1: Financial Components of the SPV/Contracting Authority (1) Zone Development  Freeport/Free Trade Zone (A, B, C, D)  Industrial Park (A, B)  Residential Area (A, B, C, D)  Real Estate Area  Service Area (A, B)  Tourism Park (1, 2)  MICE Zone (2) Supporting Infrastructures  Arterial Road (Northeast, Northwest, South)  Drainage (1, 2, 3, 4) (3) Land Compensation  Compensation Fee Source: JICA Study Team

To implement, realise, and accelerate the project, the leasing fee to SEZ enterprises must be kept at a competitive level. The calculation uses the leasing fees which could be competitive to the rest of industrial areas in Mombasa. Then, the SEZ developer will find very low FIRR as shown in Table 9.3.2 here below. Table 9.3.2: Results of the Financial Analysis for the SEZ Developer (SPV) FIRR (%) B/C NPV (Million USD) 0.34 0.76 -44.18 Source: JICA Study Team

9.4 The Necessity of PPPs

From the previous calculations, the SEZ development in Mombasa appears to have high economic benefit but marginal financial viability. High economic benefit is largely due to the potential of creating new business and employment opportunities through maintaining of

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report business-friendly regulations and infrastructure. However, it must be noted that the cost burden heavily lies on the SEZ developer who will undertake the land preparation, while the economic benefits are to be shared by many. The cost burden is caused by the hilly landscape which will require much more earthwork compared to the major flat land in the north and west sides of the city.

In order to realise considerable economic benefits, the development of the SEZ must be carried out as a government-led project or a public and private partnership. Since the project has been listed in the PPP National Priority List, the government needs to decide which components are to be covered by the public in order to secure the benefit of potential investors of the SEZ and the overall national economic benefit.

PPP Procurement The next step for the SEZ is that MOIED undertakes a feasibility study (F/S) for obtaining the approval of the PPP Committee pursuant to Section 33 of the PPP Act. The purpose of this F/S is to determine the viability of undertaking the project. According to the PPP Unit, the F/S should be conducted after the establishment of the SEZ legal framework as a result of approval of the SEZ Bill by Parliament. First, the F/S defines the investment rationale for potential investors. Then, a competitive bidding process would follow under Section 37 onwards. The bidding process consists of three steps, i.e., (1) prequalification of potential bidders, (2) tender and evaluation of the technical proposal and financial bid submitted by the bidders, and (3) negotiation with the first-ranked bidder. In practice, a transaction advisor is often procured to provide various professional support to the government in order for her to successfully execute the process described herein. 2 concepts of the F/S, 1) for the government and 2) for investors, should be clearly distinguished. The purpose of the government’s F/S is to confirm if the project is reasonably viable to attract potential investors to the bidding process. Conversely, the purpose of the investor’s F/S is to evaluate the project and determine the bid price. Both F/S cover almost the same issues, including technical, legal, environmental and financial aspects; however, it is often said that the analysis in the investor’s F/S should be more sophisticated and detailed especially its cash flow projection, which will have a direct impact on the determination of the bid price in the competition. Table 9.4.1: Comparison of F/S between Government and Investor Government’s F/S Investor’s F/S Purpose For considering project viability and For making wise investment investors’ rationale for bidding decisions regarding the bid price Obligation by laws Yes (PPP Act) No Issues to be covered Technical, legal, financial, social, and environmental issues Other remarks Transparency, free and fair for Sophisticated and detailed analysis competitive bidding Source: JICA Study Team 9-10

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Another difference between the government’s F/S and the investor’s F/S is that the government’s F/S is often stipulated in the laws or regulations as part of the procedure for the tender while the investor’s F/S is not. The investors normally choose to execute their own F/S for their own commercial benefit in order to ensure that their bid price is high enough to win the tender, and at the same time it is low enough to secure profitability and viability of the project. The F/S under Section 33 of the PPP Act should cover the following issues: a) Technical requirements of the project b) Legal requirements to be met by the parties to the projects c) Social, economic, and environmental impacts of the project d) Affordability, value for money and public sector comparator for the project

In recent practice, a transaction advisor is often recruited with the support of the PPP Unit under National Treasury in order to provide professional assistance to the F/S and/or implementation of the tender process. The support of the PPP Unit includes not only advice on the procurement process, but also financial support from the PPP Project Facilitation Fund, whose back-up finance is provided from USD 40 million credit facility of the World Bank dated in December 2012. It is mentioned in the procurement of the transaction advisor to follow the World Bank’s Consultant Guidelines, as follows:

Extract from an example of procurement document for Transaction Advisor The attention of interested consultants is drawn to paragraph 1.9 of the World Bank’s Guidelines: Selection and Employment of Consultants [under IBRD Loans and IDA Credits & Grants] by World Bank Borrowers published in January 2011 (“Consultant Guidelines”), setting forth the World Bank’s policy on conflict of interest. A consultant will be selected in accordance with the procedures for selection of individual consultants set out in the Consultant Guidelines.

9.5 Organisational Structure for Operations and Management

9.5.1 SEZ Authority and One-Stop Centre

(1) SEZ Authority (SEZA)

As per SEZ Bill 2015, the functions of the SEZA are divided into the following five categories. (a) Policy, regulation, rules, procedure and plan; (b) Regulatory and management; (c) Identification of land; (d) Investment promotion; and (e) Others 9-11

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report SEZA may have functions to develop infrastructure in and surroundings of the designated SEZ. Therefore, if SEZA develops SEZ by itself, it needs to acquire land, grant the license as a SEZ Developer to itself, and develop the infrastructure for SEZ by itself.

(2) One-Stop Centre

9.5.2 SEZ Developer, Operator and Enterprise

SEZA, as the SEZ Regulator, formulates and provides legal and institutional frameworks for the management of the SEZ, and grants licences for the following organizations:

1. SEZ Developer 2. SEZ Operator 3. SEZ Enterprise

(1) SEZ Developer and Operator

Definition of SEZ Developer and Operator

SEZ Developer and SEZ Operator are defined by the SEZ Bill 2015 as shown below:

･ "Special Economic Zone Developer" means a corporate body which is engaged in or plans on developing, and which may or may not also operate or plan to operate, a Special Economic Zone under this Act.

･ "Special Economic Zones Operator" means a corporate body engaged in the management of a Special Economic Zone, and designated as such under the provisions of this Act.

Application and Issue of License for SEZ Developer and Operator

Application and issue of license for SEZ Developer, Operator and Enterprise are stipulated as shown below:

(1) A person who, intends to carry on business as a Special Economic Zone Developer, Operator or Enterprise, shall apply in the prescribed form to the Authority for an appropriate license or for a renewal of the license.

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (2) On receiving an application for licence or for a renewal of a licence, the Authority, may on the recommendations of the Commissioner of Customs and upon payment of the prescribed fee, issue to the applicant the appropriate licence or renew the licence.

(3) In evaluating applications for Special Economic Zone Developer, Operator and Enterprise licences, the Authority shall assess the specific engineering financial plans, financial viability, and environmental and social impacts of the applicant's proposed Special Economic Zone project, as appropriate.

(4) The Authority shall expeditiously render its decisions on licensing under this Act within a reasonable period of time from the date on which the duly completed application form is submitted together with relevant supporting documents.

(5) A licence issued under this section shall: a. be on the prescribed form; b. authorize the licensee to carry on business as a Special Economic Zone Developer, Operator or Enterprise; c. be specific with regard to the activity to be carried out under the licence; d. be valid for such period as the Authority may prescribe; e. contain such other conditions as the Authority deems necessary.

(6) A licence issued under this section may: a. be amended at any time on written notice to the holder by the Authority, if in its opinion the amendment is necessary; or b. be suspended or revoked by the Authority if the holder fails to comply with the conditions contained in the license laid down in this Act or in any Regulations made thereunder and where a licence is suspended or revoked, the holder shall take such steps as may be recommended by the Authority.

Qualifications of a SEZ Developer and Operator The Qualifications of a SEZ Developer and Operators are stipulated by SEZ Bill 2015 as shown in Table 9.5.1:

Table 9.5.1: Qualifications of SEZ Developer and Operator (1) A Special Economic Zone developer shall, in addition to such other criteria and requirements as may be prescribed: (a) be a company incorporated in Kenya, for the purpose of undertaking Special Economic Zone activities; (b) have financial capacity, technical, and managerial expertise, and associated· track record of relevant development or operational projects required for developing or operating the Special Economic Zone; and as prescribed in the regulations; (c) own or lease land or premises within the Special Economic Zone as stipulated in the Special Economic Zone (land use) Regulations. Source: SEZ Bill 2015 dated 17th February 2015 9-13

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Rights and Obligations of a SEZ Developer and Operator The rights and obligations of a SEZ Developer and Operators are stipulated by SEZ Bill 2015 as shown in Table 9.5.2.

Table 9.5.2: Rights and Obligations of SEZ Developer and Operator (1) A Special Economic Zone Developer shall have the right to: (a) act or appoint a Special Economic Zone Operator to undertake management and administration of the Special Economic Zone on its behalf subject to Subsections (2), (3) and (4) of this Section, Section 28(b) and such other licensing requirements as may be prescribed; (b) lease, sub-lease or sell land or buildings to licensed Special Economic Zone Operators and Enterprises, and charge rent or fees for other services that may be provided; (c) acquire, dispose or transfer Special Economic Zone lands or other assets; (e) develop, operate and service special economic zones lands and other assets in conformity with applicable law and its licence (e) provide utilities and other services in the Special Economic Zone, in accordance with its licence, and to charge fees for such services; (f) provide utilities and other services outside the Special Economic Zone in conformity with applicable law; (g) enjoy the benefits that may accrue under the provisions of this Act; (h) enter into contracts with private third parties for the development, operation, and servicing of Special Economic Zone lands and other assets, including on-site and off-site infrastructure; (i) enter and freely participate in international financial markets, without any legal impediments or restrictions, to obtain funds, credits, guarantees, and other financial resources; and (j) advertise and promote the Special Economic Zone for which it holds a license to potential investors and service providers. (2) A Special Economic Zone Developer shall, in such manner as may be prescribed: (a) perform such physical development works or make such improvements to the Special Economic Zone site and its facilities as may be required according to plans approved by the Authority; (b) provide adequate enclosures to segregate the zone area from the customs territory for the protection of revenue together with suitable provisions for the movement of persons, conveyances, vessels and goods entering or leaving the zone; (c) provide or cause to be provided, adequate security on the site, as maybe determined by the Authority in its licence; (d) adopt and enforce such rules and Regulations within the Special Economic Zone that promotes safe and efficient business operations; (e) maintain adequate and proper accounts, and other records in relation to its activities, employment statistics, business and report on zone activities, performance and development to the Authority on a periodic basis or as required by the Authority; and (f) register all leases with the Authority. (3) The accounts and records required under Paragraph (e) of Subsection (2) shall be maintained in any of the languages. (4) A Special Economic Zone Developer or a Special Economic Zone Operator, who fails to maintain adequate and proper accounts and other records as required by this section commits an offence and is liable to a fine not exceeding three hundred thousand shillings or to imprisonment for a term not exceeding six months or both. Source: SEZ Bill 2015 dated 17th February 2015 9-14

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (2) SEZ Enterprise

Definition of a SEZ Enterprise

SEZ Bill 2015 defines a SEZ Enterprise as follows; “…a corporate body, which has been licensed under this Act”. This appears to be an ambiguous definition, which does not define the activities of a SEZ Enterprise. A SEZ Enterprise is interpreted as a so-called “tenant”, and a corporate body licensed under this Act which engages in business activities allowed by this Act in a SEZ.

Application and Issue of License for SEZ Enterprise

The application and issue of license for SEZ Enterprise are stipulated by SEZ Bill 2015 together with SEZ Developer and Operator as shown above.

Qualifications of a SEZ Enterprise

The qualifications of a SEZ Enterprise are stipulated by SEZ Bill 2015 as shown in Table 9.5.3.

Table 9.5.3: Qualifications of SEZ Enterprise (2) The Authority shall grant a licence if the application meets the objectives of this Act, and Special Economic Zone Regulations and if the proposed business enterprise: (a) is incorporated in Kenya whether or not it is one hundred per cent foreign owned; (b) proposes to engage in any activity or activities eligible to be undertaken by a Special Economic Zone enterprise in the Special Economic Zone; (c) does not have a negative impact on the environment or engage in activities impinging on national security or presenting a health hazard; and (d) conducts business in accordance with the laws for the time being in force save for any exemptions provided under this Act. Source: SEZ Bill 2015 dated 17th February 2015

Rights and Obligations of SEZ Enterprise

The rights and obligations of SEZ Enterprise are stipulated by SEZ Bill 2015 as shown in Table 9.5.4.

Table 9.5.4: Rights and Obligations of SEZ Enterprise A licensed Special Economic Zone enterprise shall enjoy: (a) the full protection of its property rights against all risks of nationalization or expropriation; (b) the right to fully repatriate all capital and profits, without any foreign exchange impediments; (c) the right of protection of industrial and intellectual property rights, in particular patents, copyrights, business names, industrial designs, technical processes and trademarks; (d) the right to admit into the Special Economic Zone for which it is licensed, to export and sell in the customs territory all classes or kinds of goods and services in accordance with the Customs laws of the East African Community; (e) the right to transact and carry on business with a non-Special Economic Zones enterprise; (f) right to transact and carry on business with non-special economic zones enterprise 9-15

Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (g) the right to contract with any other enterprises, to buy, sell, lease, sublet or otherwise exercise, manage, or transfer land or buildings within a Special Economic Zone, subject to the said enterprise’s own property rights; (h) the right to contract with any other enterprise, to buy sell, lease, sublet, or otherwise exercise, manage, or transfer land or buildings within a Special Economic Zone subject to the provisions of the East African Community Customs Management Act and applicable regulations in respect of the activities of such enterprise within the special economic zone; (i) the right to determine the prices of any of its goods or services sold inside or outside the Special Economic Zone for which it is licensed; (j) the benefits in the national context of an open, free competitive investment environment, including the right to freely engage within the Special Economic Zone for which it is licensed in any business, trade, manufacturing or service activity not prohibited by this Act; and (k) all other rights and benefits granted to licensed Special Economic Zone Enterprises under this Act. Source: SEZ Bill 2015 dated 17th February 2015

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Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

CHAPTER 10 RECOMMENDATIONS AND CONCLUSIONS

This chapter outlines the preconditions or factors to be considered by the Ministry of Industrialization and Enterprise Development (MOIED), as a responsible ministry appointed by the Government of Kenya, during the establishment of the proposed the Special Economic Zone (SEZ). There are essentially two factors: the external factors which cannot be controlled by the MOIED and, the internal factors which are within the MOIED’s authority. Based on those results, recommendations and conclusions are made for specific issues such as the legal framework, organisational arrangements for implementation; operations and management; engineering preparation as well as for environmental and social considerations. Finally, recommendations on the way forward in seeking to implement the SEZ project.

10.1 Preconditions for the Success of the SEZ Project

(1) External Factors

The following external factors surrounding the SEZ will have great impact and bearing on its success: . Maintain the sufficient domestic economic growth; . Maintain the public order and security and social environment around SEZ; . High level coordination and implementation of commitment made by the Government of Kenya and high level coordination; . Enabling Legal framework; especially enactment of the SEZ Act in Kenya and implementation of the Policy for the East African Community (EAC); . Timely completion of off-site infrastructure projects; especially the timely completion of surrounding infrastructure projects such as the Southern Bypass Road, Dongo Kundu Port, water and electricity supply; and . Mobilization of project funds.

(2) Internal Factors

All concerned parties should make the effort to drive the success of the SEZ project by focussing on the following internal factors.

10-1 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report . Offering competitive prices of leasing or selling land lots in the SEZ considering enterprises/investors attraction; . Set-up, operate and manage One-Stop Centre to make convenience for the investor; and . Undertaking marketing and promotion.

Environmental Factors . Necessary to engage the stakeholder for smooth resettlement and implementation; and . Conducting an Environmental Impact Analysis (EIA).

10.2 Recommendations on Specific Issues

10.2.1 Implementation Approach

To meet the development timeframe set by the Government and to avoid the delay on the Project implementation, it is recommended to have a part of the SEZ in Dongo Kundu at Mombasa to be developed fully by the Government (referred to as Category A area), since these sections are expensive to be developed and may not attract private investors under the PPP arrangement.

The Government of Kenya is recommended to develop components below to facilitate participation of private parties into the SEZ. The strong leadership and prompt action will lead private investor to the SEZ as well as Kenya and bring the competitiveness among the surrounding countries:

1) Public infrastructure development within the SEZ, including major roads, drainage system, a substation, water distribution centre and resettlement areas, and

2) Category A area, which may include free port, free trade zone and industrial park.

The following sequential procedure is recommended for establishing the implementation structure:

1) The Government shall establish a Special Purpose Vehicle (SPV) with full mandate to develop and manage the SEZ;

2) Government funding arrangements to be made for public infrastructure development and category A area as these is required to accelerate the project and attract investors; and

3) Fast track the implementation of PPP procurement.

10-2 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 4) Conduct coordinated marketing and promotional activities.

10.2.2 Land Use and Design Preparation

To ensure proper development and maximize the utilization of the land, it is recommended that developed design and the land use plan are strictly adhered to during project implementation.

Feasibility studies and detailed designs for the following facilities should follow as the next step. . Port at Dongo Kundu area. . Major/Artery Road . Major drainage and storm water system . Land Preparation of the Category A Area.

There are many related on-going projects around the region and those should coordinate each other for swift and smooth implementations. The on-going projects related to the SEZ development are listed below. . New port at Dongo Kundu with KPA. . Mombasa Southern Bypass Road, with KENHA. . Water Supply with Kwale County and Mombasa City County governments. . Power Supply with MOEP and KPLC. . Solid Waste with Mombasa City County.

10.2.3 Environmental and Social Considerations

1) For the timely completion of the Project, Resettlement Action Plan (RAP) should be fast tracked.

2) Stakeholder Engagement

The implementation of the Master Plan should take advantage of the sense of shared responsibility emerging from the SEA. The output and suggestions from the SEA shall be linked with the downstream project-level environmental impact assessment (EIA) and decision-making process in order to ensure sound management of induced and cumulative impacts beyond site-specific activities. It is essential to continue the engagement with stakeholders in the course of realisation of the Master Plan.

10-3 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report 10.3 Critical Success Factors

In order to successfully implement the SEZ programme, the following critical factors must be in place.

1) Establishment of the legal and institutional framework.

2) High level coordination to ensure fast and timely realization of the programme goal.

3) Development of basic infrastructure (port, southern by-pass, water and power supply) to support the programme.

4) Land clearance and resettlement in the Dongo Kundu area.

10.4 Conclusions

With the proposed 958 hectare development footprint included in the Master Plan, the SEZ will provide employment for 27,000 people and bring the better quality of life to the Kenya.

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APPENDIX I SUPPLEMENTAL MATERIAL FOR INDUSTRIAL DEMAND SURVEY

I.1 Questionnaire Sheet

Survey on the

Note Mombasa SEZ Project Master Plan, Kenya The government of Kenya is formulating a Mombasa SEZ development master plan with the support of Japan International Cooperation Agency (JICA). The purpose of this survey is to collect basic data to be reflected in the master plan such as land investment demand and preferable climate by potential investors. 1. Please tick the appropriate box. 2. If you tick 'Others' please provide details in the parentheses.

Name Position

TEL Email

□ Yes What kind of facilities do you own? Do you own □ Branch □ Sales Office facilities in Africa? □ No □ Factory □ Warehouse □ Others( )

Ｑ１ Business in Africa

［Ｑ１-１］Are you interested in doing business in Africa? If you have already been doing business or you have a plan to do business in Africa, please write the name of the country in the blank space provided.

□ Yes, we already do business in . □ Yes, we are planning to do business in . □ Yes, but we have no plan to do business in Africa. □ No.

［Ｑ１-２］Which sub-Saharan Africa countries are you interested in? Please choose 3 countries. Please write ‘1’in front of the county which you are the most interested in, write ‘2’in front of the country which you are second most interested in, and ‘3’ in front of the country you are third most interested in.

*1 Sub-Saharan Africa:49 countries located in the south of Sahara. Population:850 million, GDP:US$1,112billion(2010). The increasing rate of Sub-Saharan African GDP is twice that of the world average in these 10 years(2000-2010).The share of South Africa is 30% of Sub-Saharan countries, the share of Nigeria is 20%.The share of Kenya is 2.8%, which ranks as having the fifth largest share.

I-1 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

＜North Africa＞（）Sudan （）South Sudan ＜West Africa＞（）Ghana （）Cape Verde （）The Gambia （）Guinea （）Guinea Bissau （）Ivory Coast （）Sierra Leone （）Senegal （）Togo （）Nigeria （）Niger （）Benin （）Burkina （）Mali （）Mauritania （）Liberia ＜Central Africa＞（）Gabon （）Cameroon （）Equatorial Guinea （）Chad （）Congo （）Democratic Republic of the Congo （）Burundi （）Rwanda （）Central Africa Republic （）Saint Tome& Principe ＜East Africa＞（）Uganda （）Ethiopia （）Eritrea （）Kenya （）Djibouti （）Seychelles （）Somalia （）Tanzania ＜South Africa＞（）Angola （）Comoros （）Zambia （）Zimbabwe （）Swaziland （）Namibia （）Botswana （）Malawi （）Madagascar （）Mauritius （）Mozambique （）Lesotho （）South Africa ［Ｑ１-３］Please provide your reason for your answers in Q1-2. (Multiple answers allowed) □ Big market □ Favorable location □ High economic growth □ Political stability □ Highly equipped infrastructure □ Cheap labor cost □ Tax incentives □ Natural resources( ) □ Existence of related industries□ Existence of partners in that country □ Others( )

［Ｑ１-４］Are you interested in East African Community which Kenya belongs to as an investment ? *2 East African Community: Founded in 2001. EAC, consisting of Kenya, Tanzania, Uganda, Burundi and Rwanda, promotes economic integration. Tariffs in EAC were abolished, common external tariffs were introduced, and rules of origin were adopted. EAC aims to expand and deepen collaboration not only from an economic perspective, but also from political and cultural perspectives. EAC (population:130 million 、 area:1.82 million ㎢ , GDPUS$79.2billion)

□ Yes □ No If your answer is‘Yes’, □ No idea please answer the following questions.

Please choose the reason. (Multiple answers allowed) □ Big market □ Favorable location □ High economic growth □ Political stability □ Highly equipped infrastructure □ Cheap labor cost □ Tax incentives □ Natural resources( ) □ Existence of related industries □ Existence of partners in that country □ Others( )

What kind of facilities is suitable for setting up in EAC? (Multiple answers allowed) □ Factory □ Warehouse □ R&D □ Sales office □ None □ Others( )

I-2 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Ｑ２ Mombasa SEZ in Kenya

［Ｑ２-１］The government of Kenya are planning to develop SEZ in Mombasa. Mombasa is the second biggest city in Kenya (population: 670 thousand), following Nairobi, the capital of Kenya. Mombasa is famous as an international port city. What are your thoughts on investment in Mombasa SEZ in the future? *3 Special Economic Zone (SEZ): SEZ is a geographical region that is designed to export goods and provide employment. SEZs may be exempt from laws regarding taxes, quotas, Foreign Direct Investment (FDI)-bans, labor laws and other restrictive laws in order to make the goods manufactured in the SEZ at a globally competitive price. □ We will invest in Mombasa SEZ in the future. □ We are interested in Mombasa SEZ project, but no idea. Please answer □ We will not invest in Mombasa SEZ. the following □ No idea questions.

What kind of facilities will you set up? (Multiple answers allowed) □ Warehouse □ Distribution facilities □ Factory □ Maintenance Center □ Sales office □ Bonded exhibition facilities □ Others( )

How large a land area do you need? (Multiple answers allowed) □ Smaller than 5,000 ㎡ □ 5,000 ㎡ to １ha □ １to ５ha □ ５to 10ha □ Larger than 10ha □ Not fixed

When will you invest? (Multiple answers allowed) □ before 2020 □ between 2021 and 2025 □ between 2026 and 2030 □ after 2031 □ Not fixed

［Ｑ２-２］What kind of merits does Mombasa SEZ have after reading the brochure? (Multiple answers allowed) □ Close to the international port □ Close to the international airport □ Can enjoy a lot of benefit as SEZ □ Can do business in English □ Mombasa is famous as a sightseeing city □ Rich manpower □ Natural resources are abundant and some developing projects are proceeding □ Economic growth is high and promising □ Easy access to eastern African countries □ The government of Japan assists the project □ Not interested in Mombasa SEZ □ Others ( )

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［Ｑ２-３］What conditions are required for success of the Mombasa SEZ project? (Multiple answers allowed as important conditions)

Most Important important Strengthen laws and regulations concerning SEZ Transparency of investment procedure Tax incentives Improvement of social safety Good access to neighboring countries Establishment of a special organization for investment Support for employing workers, technicians, engineers Others( )

［Ｑ２-４］What infrastructure is required for success of the Mombasa SEZ project? (Multiple answers allowed for “Important”)

Most important important Good quality roads Good quality port Good quality land Reasonable land price Stable and sufficient water supply Stable and sufficient power supply Rental factories, rental warehouse Exhibition hall Good telecommunication climate Residence for foreigners International schools Others( )

Ｑ３ Others

［Ｑ３-１］Please write down any other comments/thoughts regarding Mombasa SEZ.

［Ｑ３-２］Would you like us to provide information regarding Mombasa SEZ?

□ Yes Interested topics, □ No if any.

～ Thank you for your cooperation. ～

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APPENDIX II SUPPLEMENTAL MATERIAL FOR SOCIAL AND ENVIRONMENTAL CONSIDERATIONS

II.1 Scoping Matrix for Mombasa SEZ Master Plan In line with JICA Environmental and Social Considerations Guidelines, the Scoping Matrix presented in the below table has been developed at the scoping stage of SEA as supplemental material to the Scoping Report approved by NEMA. The purpose of this Matrix is to ascertain the conformity of the SEA study with JICA’s requirements as well as those of Kenya.

Table II -1: Scoping Matrix Rating at Scoping stage

Design/ Operation Category No Item Constructio Reason Stage n Stage (OS) (DS/CS) Pollution 1 Air pollution B- B- [DS/CS] Control The construction work and vehicle would cause the dust and air pollution temporally. [OS] The emission gas from the increased traffic would have the adverse impact on air pollution. 2 Water B- B- [DS/CS] pollution The construction work and earth cut work would cause the muddy water temporally. [OS] Operations of industries/ factories and tourism, residential areas, will comprise sources of point pollution hence requiring appropriate mitigation measures. 3 Waste B- B- [CS] The construction waste soil and material would be generated. [OS] The volume of industrial/solid wastes from Mombasa SEZ will increase, potentially exceeding the capacity of waste treatment of Mombasa County. 4 Soil contami- CB-[CS] nation If the contaminated soil is transported and used for the land reclamation, the site would be contaminated. [OS] The leakage of hazardous material by the operation activities of enterprise might cause soil contamination. 5 Noise and B- C [CS] vibration The noise and vibration would increase by the construction equipment and vehicles. [OS] Noise from the operation of enterprise and traffic might cause adverse impact if the noise source is located near the sensitive receptors. 6 Offensive C C It depends on the type and scale of enterprise to be

II-1 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Rating at Scoping stage

Design/ Operation Category No Item Constructio Reason Stage n Stage (OS) (DS/CS) odour allocated in SEZ. 7 Bottom B- B- Pollutants might accumulate in bottom sediment due to sediment contamination discharged from the construction and operation work Natural 8 Protected area B- D Forest Act 2005 declares that the mangrove forest shall Environ- be managed on a sustainable basis for purposes of ment habitat for wildlife. Kaya shrines enjoy cultural protection. Prevention of pollution in Coastal Zone is gazetted under EMCA. Riparian areas are protected under the water Act of 2002. 9 Flora, fauna B- B- The construction of new port would destroy part of and mangrove ecosystem in the Dongo Kundu shoreline. biodiversity Sedimentation and drainage from the developed area also might negatively impact mangrove and tidal basin. Clearing of bushlands will affect habitat of avian fauna some of which enjoy protection under CITES and AEWA. 10 Hydrological B- D [DS/CS] situation The large-scaled earth cut work in the construction stage would change the hydrological situation. Conversion of bushlands into settlements will increase proportion of impervious area hence change the hydrological set up. 11 Topography A- B- [DS/CS] and geographical The large-scale earth cut work will be required to features (incl. reclaim the land. ground [OS] subsidence) Siltation associated with the development in the catchment area may change the bathymetric feature in the creek. The probability of ground subsidence is not clear. Social 12 Land A- D [DS/CS] Environ- acquisition ment and Implementation of the Master Plan will require the involuntary resettlement of current land users. resettlement 13 Poverty B+/B- B+/B- Many of the PAPs are categorized as poor. The capacity building for people to be able to adapt to new livelihood may be needed. 14 Indigenous C C The existence and impact on indigenous group requires people and further assessment. ethnic minority 15 Local B+/B- B+/B- The construction and operation of SEZ will create jobs economy such and offer opportunity to diversify livelihood beyond as subsistence agriculture. On the other hand, persistent employment poverty and unemployment may be aggravated if local and livelihood people are unable to access opportunities created by the SEZ. 16 (Surrounding) B- B- The implementation of the Master Plan will increase land use and demand for building wood and charcoal, thereby utilisation of spreading impact to Kwale and beyond. local

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Rating at Scoping stage

Design/ Operation Category No Item Constructio Reason Stage n Stage (OS) (DS/CS) resources 17 Water usage B- B- Operation of the SEZ will increase pressure on water resources. To avoid over-exploitation of the aquifer, water supply to be consumed in Mombasa SEZ shall be secured by the WB-financed Mwache Dam project currently under preparation. 18 Existing social A- A+ The access to existing social infrastructure and services infrastructures may be disturbed during the construction. Also, the and services Master Plan may trigger/accelerate influx of workers to the target area, potentially creating competition over medical facilities, schools and water resource which lead to social tensions in the short term. The Master Plan, however, include the provision of infrastructures and services and thus the situation will be improved in the long-term. 19 Social capital B- C [DS/CS] The cultural control of Kaya elders will be preserved but resettlement of the informal settlers may undermine integrity of the community. [OS] Transition of Dongo Kundu from rural settlement to industrial and urban centre may transform the relation between the local community and the Kaya and natural resources, potentially resulting in the erosion of local culture. 20 Equality of B- B- Displacement of local community without proper benefits and rehabilitation might aggravate poverty. In addition, losses and generally unskilled labour force in Dongo Kundu may equality in the not be able to access job markets to be created by the development SEZ. Without concerted efforts to skill development, the process local may be excluded from development benefits and the sentiment of isolation could trigger resentment and thus undermine the very stability required to inspire confidence in potential investors. 21 Local B- B- The Project might create public anxiety and concerns conflicts of over changes in livelihood in general and resettlement in interests particular. 22 Cultural B- D Kaya forest which is the place for cultural/spiritual heritage worship is marked as no-go zone in land use plan for the Master Plan, but access to Kaya may be affected during the construction stage. This culture might be eroded through influx of foreigners/outsiders in the long run. 23 Landscape B- C The large-scale earth cut work would change the landscape in the target area during the construction stage.

24 Gender B- B- Collection of water and firewood, which is typically done by women, may become more time-consuming and difficult after resettlement. This could exacerbate drop-out rate of girls from education which is already higher than that of boys. Meanwhile, job opportunities in the SEZ might lead to empowerment of women. 25 Children’s B- B- The right of children to access school, heath care, and recreation could be compromised by resettlement. Child

II-3 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Rating at Scoping stage

Design/ Operation Category No Item Constructio Reason Stage n Stage (OS) (DS/CS) right labour must be discouraged1. 26 Infectious B- B- Risk of infectious diseases might increase due to influx diseases such of construction workers and employees. as HIV/AIDS 27 Working B- C Occupational health and safety for workers during each conditions stage of SEZ is an issue of concern. The specific risk including during the operation stage depends on the nature of the occupational activities. health and safety Others 28 Accident B- B- Accidents during the construction and operation work might occur. During the operation stage, greater traffic volume may increase the likelihood of accidents. 29 Climate B- B- [DS/CS] change Emission of Greenhouse Gases (GHG) by construction vehicles would be expected. [OS] The increase in traffic and operation of enterprise could result in increased emissions. A-: Significant negative impact is expected, if any measures are not taken against the impact. A+: Significant positive impact is expected. B-: Negative impact is expected to some extent, if any measures are not taken against the impact. B+: Some positive impact is expected. C: Impacts are not clear and further examination is needed. D：No impact is expected . Source: JICA Study Team

1 The Employment Act, Part VII provides for protection of children including protection from the worst forms of child labour. It is illegal to employing a child below 13 years in any form of undertaking. However, employment of children from the ages of 13 to16 years for light work is allowed and those of 16 to 18 is considered as employable.

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II.2 Terms of Reference for the Detailed SEA Study Following the scoping study, the detailed SEA study was implemented based on the TOR shown in Table II -2. The survey items and method in the table correspond to likely environmental and social impacts identified as A-, B- or C in the Scoping Matrix (Table II -1).

Table II -2: TOR for the Detailed SEA Study

Category Item Survey Item Survey Method

Pollution Air pollution, Water pollution, 1) To identify the general activities of Baseline characterisation Control Waste, Soil contamination, project which is assumed to cause surveys entailing literature Noise and vibration, Ground those impacts review, field observations and subsidence, Offensive odour, 2) To identify the environmental and surveys, and stakeholder Bottom sediment social characteristic to be affected consultations by Project Natural Flora, fauna and biodiversity 1) Flora Observation and interview Environm 2) Fauna survey in the representative ent area Hydrological situation, 1) To identify the general activities of Baseline characterisation topography and geographical project which is assumed to cause surveys entailing literature features those impacts review, field observations and 2) To identify the environmental and surveys, and stakeholder social characteristic to be affected consultations by Project Social Resettlement/Land acquisition 1) To estimate the affected people Demographic survey, Environm 2) To identify the social and economic socio-economic survey ent status of affected people (questionnaire survey) Poverty group 1) To identify the social and economic Socio-economic survey status of affected people (questionnaire survey) Indigenous and ethnic people, 1) To identify the social baseline in the Baseline characterisation Local economy such as target area and its surrounding surveys entailing literature employment and livelihood, 2) To collect information on the other review, field observations and (Surrounding) Land use and related projects surveys, and stakeholder utilisation of local resources, 3) To identify the general contents of consultations Water usage, Existing social project which is assumed to cause infrastructures and services, those impacts Social institutions (including regional severance), Equality of benefits and losses and equality in the development process, Local conflicts of interests, Cultural heritage, Landscape, Gender, Children’s right, Infectious diseases such as HIV/AIDS, Working conditions including occupational safety Others Accident, Climate change 1) To identify the general activities of Baseline characterisation project which is assumed to cause surveys entailing literature those impacts review, field observations and surveys, and stakeholder consultations Source: JICA Study Team

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II.3 Environmental and Social Baseline Environmental and social baseline in the Project area and its vicinity was identified in the detailed SEA study and presented in Table II -3.

Table II -3: Summary of Environmental and Social Baseline Data Source/ Category Item Findings Survey Method Geographic and Geology and - Soils of Coastal Plain and Foot Plateau were developed Desk review topographic Soils on coral sands and alluvial formation of the Upper information Jurassic period, the weather of which produced well drained, moderately deep to deep, dark red to yellowish red, friable, sandy clay loam to sandy clay. They are extremely vulnerable to erosion. Hydrology - Dongo Kundu falls within the Port Reitz creek drainage Desk review which receives inflow from two sources namely the Mwache and Mteza Rivers both of which are recorded as being seasonal with flows only during the long rains (April and May) and short rains (November) seasons. Meteorology Temperature - Given the low altitude location, Mombasa remains Desk review generally hot throughout the year with mean temperatures averaging 26.3 °C with a range from 22.4 to 30.2 °C. - Temperatures are generally highest in February and October and lowest in July Rainfall - Rainfall occurrence in Mombasa is influenced by the Desk review semi-annual passage of the inter-tropical convergence zone and the monsoons – the North Easterly Monsoon from December to March and the South Easterly Monsoon from May to October. - Most of the rainfall occurs between the monsoons. Long-term mean annual rainfall is 1,210 mm delivered in one main wet season lasting from March to July and a minor one in October and December. May is the wettest month in Mombasa while the period between January and mid-March is the driest. Ecosystems Flora - It was observed that some Kayas are threatened by Field survey intrusion of invasive species such as Prosopsis juliflora. (physical observation) - The farmland areas were either with perennial cash crops (coconut trees, cashew nut tree, mango tree, among others) and ground cover dominated by herbaceous species, or carried annual subsistence crops (maize, cassava, cow pea, banana, etc) that had been weeded. Fauna - Bird: A total of 42 species of birds was recorded in Dongo Field survey Kundu with both Kaya Mlongondoni and the Mwangala (physical rangeland leading with counts of 24 species each. No bird observation species identified during the survey is classified as using sweep Critically Endangered, Endangered or Vulnerable in nets and IUCN Red List. Out of 42 bird species screened, the canopy traps Plain-backed sunbird is classified as Near Threatened. etc) and Three species of egrets and Sacred Ibis are also listed hearing from under the Convention for Migratory Species (AEWA; local residents Agreement on the Conservation of African-Eurasian Migratory Waterbirds) - Insect Pollinator (Butterflies and Bees): In total, 66 butterfly species without any conservation status under the IUCN were recorded from the areas surveyed. 21 % of the

II-6 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Data Source/ Category Item Findings Survey Method butterfly species were recorded only in Kaya forests and their immediate surroundings. - Mammal: The vervet monkey, elephant-shrew, and hedgehog were crested porcupine were observed and are accorded as Least Concern Category in the IUCN Red List. - Reptiles and Amphibians: Several species of reptiles (snakes, lizards, geckos) and amphibians (including frogs and toads) were encountered during the field survey. Black mamba, African Clawed Frog, African Common Toad, Day gecko were categorized in Least Concern of IUCN Red List. Mangrove - Of the six mangrove species recorded in Kenya, four Mangrove ecosystems species (Avicenia marina, Ceriops tagal, Rhizophora survey in the mucronata and Sonneratia alba) occur on the Dongo shoreline area Kundu coastline. Sonneratia alba occurs in isolation from Sigi Bay between Dongo Kundu and Kaya Mtongwe. to proposed Free Port - Average mangrove stock density in the area is 2,694 per Area, desk hectare with highest density recorded in Jiwelakutuza review area (average 4,700 per ha). - The distribution of Mangrove species was varied between low and high tide areas. - It is apparent that mangrove forests have been exploited for any merchantable wood. - An average stumping density of 1,785 stems per ha was observed in this study with Kaya Mtongwe leading with 3,225 stumps per ha followed by Mwakusimu at 1,800 at stumps per hectare. With an 18km long coastline, the Dongo Kundu mangrove block is estimated at 400 hectares, an estimated 0.714 million stems of mangroves would have been harvested previously. - From analysis of available data, mangrove cover in 1986 was observed to be 463 ha compared to a mudflat cover of 187.8 ha. By 2011, the mangrove cover was observed to have reduced to 359.5 ha, while mudflats had increased to 307.6 ha. This reflected a 22% loss of mangrove cover 25 years (equivalent to almost 1% annual loss) - Mangrove also serves as the habitats for various socio-economic activities such as a supply of timber for heating and constructing, honey production, sacred sites for Kaya. - Crab species is a major and conspicuous crustacean group in mangrove habitats. Especially, Scylla serrata (mangrove or mud crab) is the most sought crab species for commercial fisheries. The observation of crab burrow sizes implies that the crab population is highly dependent on mangrove cover condition. Marine - The sediment pollution by POPs (Persistent Organic Sampling sediment Pollutants) and PAHs (Polycyclic Aromatic near the survey Hydrocarbons) were not identified in this study proposed site for Port and - The concentrations of measured heavy metals (Cd, As, laboratory Hg, Cu, Pb, Cr, Ni and Zn) are within levels observed in analysis past studies and are certainly below the critical thresholds

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Data Source/ Category Item Findings Survey Method referred from the other country’s guidelines and moderate levels of silver. Socio-economic Water usage - Main source of water supply is the natural spring within Reconnaissan baseline in and sanitation Kaya Mrongondoni which is the only source of fresh ce survey, Dongo Kundu water in the entire Master Plan area, supplemented by interview area individual and community boreholes which are saline and survey the occasional water pan. - None of the households interviewed in this survey admitted owning a latrine in which case, bushes comprise the only means available for disposal of human waste. Access to - Mwangala Primary school is the only primary school in education the entire Dongo Kundu area. During an interview with the school management, it was confirmed that the school sits on 8 acres of land and currently has an enrolment of 484 children (252 boys and 232 girls). - On average children walk 7.5 kilometers to access the school. - Many children drop out of school to follow the parents in search for food and this negatively impacts on enrolment. On average, of an examination class of 24 children, 40 to 60% transit to secondary schools while the rest remain in the village. Access to - Medical services in the Master Plan area is available at health the Mbuta Health Centre supported by the Mombasa County Government. - From data available at the Hospital, malaria account for 45% of all morbidity, followed by Upper Respiratory Tract Infections and (URTI) and Urinary Tract Infections. Religious - The entire Dongo Kundu area is served by 5 churches and institutions 4 mosques. Population - 458 households were confirmed by KPA Survey (Aug, Demographic 2008) survey - Total around 480 households were counted in Dongo Kundu area by demographic survey carried out in July-Oct 2014 Composition - 19.2% of households are made of polygamous families Questionnaire of Households comprised of 2 to 3 wives and a 2% with 4 and more survey of wives. The size of household varies significantly. 151 residents scattered in Ethnic - Over 88.7% of the respondents are from the coast region, six villages, Background mainly from the Digo community while 11.2 % are from Desk review outside the coast-mainly from Eastern Kenya Counties (Ministry of Devolution, Mombasa County Development Plan, 2013) Religious - Muslims comprise the vast majority of residents in the Background area accounting for over 65.6% presence followed by Christians at 32.5%. Education - 83.5% of the respondents are of primary education or

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Data Source/ Category Item Findings Survey Method achievement below and thus may not be accessible for jobs created in and literacy SEZ2. rate - The bulk (83 respondents) of adults 66% of whom are aged below 55 years and hence still part of the productive labour force are of low literacy level greatly reduces their chances of accessing jobs anticipated from implementation of the Master Plan. Status of - Status of housing is quite poor as 73% of all dwellings housing comprise of mud wall and below. Of these, 56 % comprise of mud wall/ thatch roof combination with 4.6 % of these being made entirely of thatch. Access to land - Average land holding in the Master Plan area is 4.93 acres per household but can range from 0.5 to 30 acres. None of the respondents however have Title Deeds to the land on account of land being owned by the Kenya Ports Authority - Length of occupancy to the land varies from less than 1 to over 50 years. Over 86% of the population have lived in Dongo Kundu for more than 10 years with some good 20% having lived for over 31 years. Livelihood - Dongo Kundu is typical subsistence economy where close to 80% of households rely on agriculture forming maize cassava, pulses, sweet potato, etc. - Annual maize yield per household averages 62.3kg against a demand of 735kg. Income - Per capital monthly income is Ksh 2,564 (average) and Ksh 1,089 (median) against a poverty line of Ksh 1,562.

Source: JICA Study Team

2 The main language of the local community is Kiswahili which is also the national language. Ones a person attains primary education and can write and speak English one is considered educated or literate enough to be able to communicate in the job market.

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II.4. Analysis of Related Legal Framework in Kenya In the course of analysis of the legal and institutional framework in Kenya during the SEA study, Kenyan law and JICA Guidelines for Environmental and Social Considerations were compared as presented in Table below. While no significant differences between Kenyan regulation and JICA Guidelines for Environmental and Social Considerations have been identified regarding to the SEA process, there are several gaps in respect to the regulatory requirement of resettlement and land acquisition since the development of Resettlement Action Plan (RAP) is not specified in Kenyan law. However, NEMA typically requires the project proponents to develop RAP in accordance with World Bank safeguard policies etc. at the time of development of EIA, as required by World Bank and JICA.

II-10 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table II -4: Gap Analysis of Kenyan Regulation JICA Guidelines for Environmental Countermeasure and/or Gaps between Kenyan Regulation Item Kenyan Regulation and Social Considerations Recommendations to bridge the and JICA GL (JICA GL) gaps SEA Process for Master Plan TOR for SEA A SEA report shall include the following TOR includes understanding of No significant gaps NA information: needs, impacts to be assessed, (a) the title of the report; study methods, analysis of (b) a summary of the potential significant alternatives, a schedule, and other impacts of a proposed policy, programme items. JICA applies a SEA to such or plan; studies (for Master Plan Study, (c) potential opportunities to promote or JICA GL p25) enhance environmental conditions; (d) recommendations for mitigating measures; and (e) alternative policy, programme or plan options to ensure compliance with the Act.

In addition, National Guidelines for SEA, 2013 specifies the detail of TOR. Information Public and stakeholder engagement is one Based on the aforementioned Kenyan Regulation satisfies the NA disclosure and of the basic principle for SEA, and pubic procedure, JICA prepares draft requirement of JICA GL on this consultations engagement should be included at various reports incorporating the results matter. with stages in the SEA process. of environmental and social stakeholders In addition to stakeholder engagement in considerations studies, explains scoping process, stakeholder review them to project proponents etc., including the public review and review by and obtains their comments. For lead agencies etc. is required for Draft Category B studies, consultations SEA Report. (National Guidelines for with local stakeholders after the SEA, 2013) disclosure of draft final reports are conducted when necessary. (for Master Plan Study, JICA GL p25-26) Land Acquisition and Involuntary Resettlement Resettlement RAP for involuntary resettlement is not For projects that will result in JICA GL requires projects RAP shall be developed for Action specified by regulation in Kenya. large-scale involuntary involving large-scale involuntary the project and implemented Plan(RAP) resettlement, Resettlement Action resettlement to prepare RAP. before construction work Plans must be prepared and made However, it is not required by begins. available to the public.( JICA GL Kenyan regulation legally. p30)

II-11 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report JICA Guidelines for Environmental Countermeasure and/or Gaps between Kenyan Regulation Item Kenyan Regulation and Social Considerations Recommendations to bridge the and JICA GL (JICA GL) gaps Eligibility of The compensation for a person without People who must be resettled Informal occupants are not All PAPs including informal non-title official title of land is not specified in involuntarily and people whose eligible for compensation and dwellers shall be compensated holders Kenya while “Provision may be made for means of livelihood will be support in Kenyan regulation. and supported in line with JICA compensation to be paid to occupants in hindered or lost must be GL. good faith of land acquired who may not sufficiently compensated and hold title to the land (The Constitution of supported by project proponents Kenya, 2010)”. etc. in a timely manner. (JICA GL p30)

Informal occupants are to be provided with resettlement assistance. Compensation If land is acquired compulsorily under the Prior compensation, at full The compensation based on Full replacement cost shall be based on full Land Act, just compensation shall be paid replacement cost, must be Kenyan regulation does not provided as much as possible as replacement promptly in full to all persons whose provided as much as possible. exactly mean the full replacement stipulated in JICA GL. cost interests in the land have been (JICA GL p30) cost since the cost of preparation determined. of the land to levels similar to The National Land Commission shall those of the affected land and the make rules to regulate the assessment of cost of any registration and just compensation. (Section 111, Land transfer taxes are not clarified in Act) Kenyan regulation. Livelihood There are no specific provisions for Host countries must make efforts Livelihood restoration and Livelihood restoration and Restoration and livelihood restoration and assistance for to enable people affected by assistance for PAPs are not assistance for PAPs shall be Assistance PAPs. projects and to improve their specified by Kenyan regulation secured for the project which standard of living, income adheres to JICA GL. opportunities, and production levels, or at least to restore these to pre-project levels. (JICA GL p30) Support for The Constitution of Kenya prohibits Appropriate consideration must The consideration for vulnerable Support for socially vulnerable socially discriminate directly or indirectly against be given to vulnerable social people in PAPs is not specified by people in PAPs shall be secured vulnerable any person on any ground, including groups such as women, children, Kenyan regulation for the project which adheres people “Marginalized group”. the elderly, the poor, and ethnic to JICA GL. However, there are no specific provisions minorities.(JICA GL p29) for support for vulnerable people in PAPs. Public Planning and implementation of Appropriate participation by Public participation in RAP Public participation in RAP participation resettlement plan and public participation affected people and their process is not specified by Kenya process shall be secured for into planning in the RAP process are not specified by communities must be promoted in regulation. the project which adheres to II-12 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report JICA Guidelines for Environmental Countermeasure and/or Gaps between Kenyan Regulation Item Kenyan Regulation and Social Considerations Recommendations to bridge the and JICA GL (JICA GL) gaps and Kenyan regulation. the planning, implementation, and JICA GL. implementation monitoring of resettlement action of resettlement plans and measures to prevent the plan loss of their means of livelihood. (JICA GL p30) Grievance At least thirty days after publishing the Appropriate and accessible Land Acquisition Compensation The supplemental grievance mechanism notice of intention to acquire land, the grievance mechanisms must be Tribunal provides the chance of mechanism needs to be Commission shall appoint a date for an established for the affected people grievance resolution to the established with consideration inquiry to hear issues of propriety and and their communities. (JICA GL affected people. However, it may for its accessibility, taking into claims for compensation by persons p30) not be easily accessible to all account of the socio-economic interested in the land (Section 112, Land affected people. characteristics of affected Act) people. Any dispute arising out of any matter provided for under this Act may be referred to the Land and Environment Court for determination.(Section 128, Land Act) Monitoring Planning, and implementation of Appropriate follow-up plans and Monitoring for RAP is not Monitoring system for RAP monitoring for RAP are not specified by systems, such as monitoring plans specified by Kenyan regulation. shall be established. Kenyan regulation. and environmental management plans, must be prepared; the costs of implementing such plans and systems, and the financial methods to fund such costs, must be determined. (JICA GL p28) Source: JICA Study Team

II-13 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

II.5. Environmental and Social Impacts

The environmental and social impacts are predicted as a result of survey conducted based on TOR shown in Table II-2. Table II-5 summarizes the potential impact at the design stage, construction stage and operation stage of development of Mombasa SEZ. The table corresponds to the scoping matrix shown in Table I-1. The analysis focuses on the negative impacts that were identified as A-, B- or C by the scoping study.

Table II-5: Analysis of Potential Impacts Rating at Category Item the detailed Reason SEA Design Stage Pollution Air pollution D - Activities that cause air pollution are not expected at this stage. Control Water pollution D - Activities that cause water pollution are not expected.

Waste D - Activities that cause impact on waste are not expected.

Soil D - Activities that cause soil contamination are not expected. contamination Noise and D - Activities that cause noise and vibration are not expected. vibration Offensive odour D - Activities that cause offensive odour are not expected.

Bottom B- - Minor site disturbances from survey and related activities, sediment including bathymetric survey and boring might occur. However, the impact is limited and temporary.

Natural Protected area B- - Minor site disturbances from survey and related activities might Environm occur. ent - However, the impact is limited and temporary. The activities which is considered threats to protected area are not expected Flora, fauna and B- - Minor site disturbances from survey and related activities, biodiversity including clearing of natural vegetations might occur. However, the impact is limited and temporary. Hydrological D - Activities involving large-scale change of hydrology are not situation expected at design stage. Topography and D - Activities involving large-scale change of topography and geographical geographical features are not expected at design stage. features(incl. ground subsidence) Social Land acquisition B- - Public anxiety and concerns about changes in livelihood in general Environm and involuntary and involuntary resentment in particular are expected. ent resettlement

Poverty D - The activity which causes the adverse impact on this item is not expected in the design stage. Indigenous D ditto people and ethnic minority

Local economy D ditto such as employment and livelihood

(Surrounding) D ditto land use and utilisation of

II-14 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Rating at Category Item the detailed Reason SEA local resources

Water usage B- - Activities involving large-scale use of water are not expected at design stage. On the other hand, disconnect with the other planned developments such as the water supply project financed by World Bank might affect the design of Mombasa SEZ. Existing social B- - Interference with the flight path to Mombasa Moi International infrastructures Airport and other existing facilities around SEZ shall be and services considered.

Social capital D - No interference at design stage is expected.

Equality of B- - The opportunity for benefit of Project could depend on the benefits and conditions. For example, the people outside of Mombasa SEZ who losses and will not be benefited by the infrastructure development might feel equality in the inequality. development process

Local conflicts B- - Local conflicts due to public anxiety and concerns about changes of interests in livelihood and economics are expected.

Cultural D - The activity which causes the adverse impact on this item is not heritage expected in the design stage. Five Kaya forests have been identified by the community for zoning off in the land use plan. Landscape D - The activity which causes the adverse impact on this item is not expected in the design stage. Gender D ditto

Children’s right D ditto

Infectious D ditto diseases such as HIV/AIDS

Working D ditto conditions including occupational health and safety Others Accident B- - Minor accidents during survey working in an area otherwise invested with snakes might occur. Climate change D - The activity which causes the adverse impact on this item is not expected in the design stage. Construction Stage Pollution Air pollution A- - Nuisance dust during cutting, grinding, machining etc. would be Control expected, though .the detail impact can be evaluated in the EIA of each subproject. Water pollution A- - The construction work and earth cut work would cause the muddy water temporally, though .the detail impact can be evaluated in the EIA of each subproject. Waste A-/B- - Waste from civil works in the SEZ comprises surplus soil, packaging, debris, waste spares and oils, scrap from workshops etc all of which has potential to pose environmental challenges unless appropriately disposed. The detail impact can be evaluated in the EIA of each subproject. Soil B-/C - The use of fill material brought from or transported to the other contamination site has the potential of bringing in or out soil contamination. In addition, hazardous waste or material due to construction work might cause the pollution of subsoil. However, it depends on the construction method to be applied and the detail impact can be evaluated in the EIA of each subproject. Noise and B- - Noise and vibrations from construction work and increased traffic vibration would affect the sensitive receptors. The detail impact can be evaluated in the EIA of each subproject. II-15 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Rating at Category Item the detailed Reason SEA Offensive odour B-/C - Offensive odour from construction work would occur. However, it depends on the type and scale of construction method and the detail impact can be evaluated in the EIA of each subproject. Bottom B- - Sediment generation into Port Reitz from construction activities is sediment expected. In addition, the pollutants in runoff from the catchment area can be adsorbed to silty soil. The quality and quantity of bottom sediment in Port Reitz Creek might be changed. Natural Protected area B- - Five Kaya forest identified with the local community is protected Environm in the land use plan. ent - The development plan of mangrove area and other coastlines protected area needs to acquire the permission for construction from the authorities. Flora, fauna and A-/B- - Mangrove shoreline is likely to be modified in development of the biodiversity ports and power plant. It will interfere with mangrove and intertidal flat ecosystems. - Introduction of invasive/ alien species in construction materials shall also be concerned. Hydrological A- - The large-scale earthwork such as alteration or modification of situation land will cause impact on hydrological characteristics of both surface water and groundwater. Topography and A- - In some areas, the land is dominated by steep cliffs whose geographical physical modification may cause slope instability and possible features(incl. siltation into the Port Reitz Creek. ground - Sediment generation into Port Reitz from construction activities subsidence) potentially leading to changes in bathymetric feature is expected. - Though the ground subsidence is not expected, the detail impact can be evaluated in the EIA of each subproject. Social Land acquisition A-/B- - The demographic survey undertaken as part of the SEA Study Environm and involuntary found that close to 480 households of population 2,600 people ent resettlement are settled in Dongo Kundu and likely to be affected involving the involuntary resettlement while other livelihoods such as fishermen-some of whom come from Kwale County are likely to find difficulty accessing fish landing points. Poverty B+/B- - The high poverty levels with a majority of the population below the poverty line are a major consideration in the Dongo Kundu area. The poverty is multifaceted as it could be as a result of the low literacy level, lack of title deeds; poor infrastructure and service provision in the area. The RAP to be developed in the subsequent stage shall prepare the considerate measures for poverty group. - On the other hand, the development of the area and economic status could improve their livelihood. Indigenous B- - Local community lead by Kaya elder has established their cultural people and identities based on the traditional governance system of sacred ethnic minority Kaya forest. They geographically attach to the natural resources in ancestral territories of Kaya. The accessibility of Kaya forests and its cultural value shall be considered in the course of implementation of subproject though the land use plan for the Master Plan has been guided by the principle of preserving Kaya forests. Local economy A+/B- - Business opportunities in supply and transport of construction such as materials, services-food, housing etc would be increased. The employment and employment in construction also be provided. livelihood - On the other hand, dredging and explosion works in the riparian and marine area are likely to disturb the fishery in Port Reitz. (Surrounding) B+/B- - Development of Mombasa SEZ would reduce land available for land use and agriculture and consume the construction material in Mombasa and utilisation of Kwale County. local resources - On the other hand, it will induce the effective utilisation of the surrounding land use and bring the positive economic effect. Water usage B- - Freshwater is not easy to come by within the entire South Coast where communities mainly rely either on tap water, boreholes and shallow wells. The design process must take time to introduce viable source of water for construction to avoid competition with communities along the traverse.

II-16 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Rating at Category Item the detailed Reason SEA Existing social A- - Dongo Kundu has evolved into a typical rural settlement complete infrastructures with community assets including the health centre, school, and services churches, mosques, etc. Disturbance to village life, such as access to primary education and other those existing infrastructure and increased traffic load due to construction activity would be expected. Social capital B- - Involuntary resettlement could lead to erosion of community bond.

Equality of B- - The development of Dongo Kundu area might cause the feeling of benefits and alienation in the neighbouring area, especially Kwale County losses and unless it does not contribute to the development of the wider equality in the coastal area. development process

Local conflicts B- - Increase in social tensions in the community due to influx of of interests outsiders of construction crew is anticipated. It also might trigger the proliferation of social vices. Cultural B- - The accessibility of Kaya forests and its cultural value shall be heritage considered in the course of implementation of subproject though the land use plan for the Master Plan has been guided by the principle of preserving Kaya forests. - The construction in the Port Reitz might damage the maritime heritage including a wreck. An archaeological study will need to be carried out for the port development area. Landscape A- - The implementation of the Master Plan components as conceived will permanently alter the local landscape, shoreline morphology and identity of the area, though the detail impact can be evaluated in the EIA of each subproject.

Gender B- - Increased income of men from employment could see some abandon their families in pursuit of fun and this could see women and children disadvantaged. The developer or investors is required to factor in measures to cushion women through reservation of special job categories. - The job opportunity to be generated at construction stage might be limited compared with one for men. Children’s right B- - The rights of children to family, adequate food, shelter, education, recreation and other necessities could be compromised in displacement activities. Children’s right to education, health care and other social service would not be secured when the access to school and medical centre etc is inhibited or their livelihood is threatened by project. Infectious B- - Socio-impacts of construction crew and labour camps could diseases such as include uncontrolled spread of vices which potentially lead to HIV/AIDS escalation of sexually transmitted diseases including HIV and AIDs. Working B- - Concerns emanate from industrial/ occupational hazards (injuries, conditions fatalities, ailment, etc) associated with operation of plants and including equipment at the construction site. occupational - The massive influx of workers to be engaged in construction have health and specific sanitation needs whose inadequate supply would see any safety available bunch, gully, etc turned into a toilet with attendant threats to public health. Others Accident B- - Large equipment and vehicle for construction work may cause the accidents including the fire hazards Climate change A-/B- - Transportation of the materials and equipment for the construction work will involve burning of fossil fuels and release of GHG into the atmosphere. - Loss of carbon sink from destruction of natural cover vegetation and mangrove is expected. The development of Mombasa SEZ area will involve significant volume of earth cut and fill work. While about 220 ha of land will be kept as reserve area for conservation, the capacity of Dongo Kundu as carbon sink will be reduced, which represent a net loss to the global fight against climate change.

II-17 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Rating at Category Item the detailed Reason SEA Operation Stage Pollution Air pollution B- - The emission gas from the increased traffic and operation of Control enterprise will deteriorate the ambient air quality. The extent of such impact depends on the type/scale of enterprise and transportation system in Mombasa SEZ. The detail impact shall be examined by EIA in the subsequent F/S of each subproject.

Water pollution B- - The following factors associated with the operation of SEZ would deteriorate the surface water quality, especially in Port Reitz Creek, if the appropriated measures are not taken.  Generation of effluent water from industries and domestic sewage  Roadway drainage which would include oil and chemicals.  Oil spill and chemical effluent by environmental accident  Red soil runoff into the creek - The pollution risk might be higher if an oil tank farm is introduced in Mombasa SEZ. The extent of such impact depends on the type and scale of enterprise in Mombasa SEZ. The detail impact shall be examined by EIA in the subsequent F/S of each subproject. Waste B- - The domestic and industrial wastes will increase due to the operation of industries, offices and residence in Mombasa SEZ. The enterprise might generate the hazardous waste while there are no landfills accepting the hazardous waste in Mombasa County. The sanitary conditions would be deteriorated if the waste treatment system and capacity of landfill are not be secured. The detail impact shall be examined by EIA in the subsequent F/S of each subproject. Soil B- - The leakage of hazardous material by the operation activities of contamination enterprises might cause the soil contamination. It depends on the type of enterprise and design of facilities. The detail impact shall be examined by EIA in the subsequent F/S of each subproject. Noise and C - Noise from the operation of enterprise and traffic might go beyond vibration the tolerance limits. However, the extent of impact depends on the type of enterprise, design of facilities, transportation system and distance to the sensitive receptors. The detail impact shall be examined by EIA in the subsequent F/S of each subproject. Offensive odour C - The impact depends on the type/scale of enterprises to be allocated in SEZ, design of facilities and distance to the receptors. The detail impact shall be examined by EIA in the subsequent F/S of each subproject. Bottom B- - Sediment generation into Port Reitz from bare land is expected. In sediment addition, the pollutants in runoff from the catchment area can be adsorbed to the silt. The quality and quantity of bottom sediment in Port Reitz Creek might be changed. Natural Flora, fauna and B- - Sedimentation and drainage from the developed area might Environm biodiversity degrade the ecosystems in the remaining mangrove and tidal basin. ent The detail impact shall be examined by EIA in the subsequent F/S of each subproject. Topography and B-/C - Siltation associated with the development of the catchment area geographical may change the bathymetric feature in the creek. The impact will features(incl. be examined for the operation of port function by port ground development project. subsidence) - Though ground subsidence is not expected, the impact will be examined by EIA in the subsequent F/S of each subproject. Social Poverty A+/B- - The poverty of PAPs will also benefit from employment growth in Environm Mombasa SEZ which offers them opportunity to diversify their ent livelihood beyond subsistent agriculture and fishing and have cash income. - The continuous assistance such as job training and relocation assistance shall be prepared in the RAP to be developed because of the difficulty of adjustment to new livelihood Indigenous C - The traditional religious and cultural system which define the people and characteristic and identities of local people based on Kaya might ethnic minority be changed through influx of foreigners and outsiders in the long run. However, the impact is unknown as of the Master Plan. II-18 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Rating at Category Item the detailed Reason SEA Local economy A+/B- - The local economy will gain from creation of some 28,000 jobs by such as 2030, creation of market for local goods and services and increase employment and trade opportunities. livelihood - Job opportunity for local people might be threaten by influx of outsiders and foreign workers. (Surrounding) A+/A- - The development of Mombasa SEZ will enhance value of property land use and and economic utilisation in adjoining area, attracting other utilisation of economic activity. local resources - On the other hand, a major concern especially from Kwale County is the potential to development in Dongo Kundu to attract simultaneous but non planned development in areas adjoining the SEZ. Kwale County may inherit the burden of providing infrastructure previously not anticipated without getting direct benefit from SEZ. The feedback from stakeholders should be taken into account during the phased development of Mombasa SEZ to ensure that such issues are not ignored. Water usage B+/B- - Mombasa SEZ is anticipated to consume significant amount of water for industries, daily use and drinking. Dongo Kundu is not connected to the tap, but the proposed World Bank financed Mwache Dam has sufficient capacity to supply additional water demand in SEZ. As such, changes or delay of Mwache Dam project may significantly increase pressure on water resources and undermine ecological viability of Mombasa SEZ. - For the resettled people, basic services including water supply will be prepared. Equality of B+/B- - As presented in the description of impact on “(surrounding) land benefits and use and utilisation of local resources”, the difference of the losses and development process between Dongo Kundu area and Kwale equality in the County is one of the main concerns of Kwale County though development Kwale County also benefit from the development of Mombasa process SEZ to some extent.

Local conflicts B- - As presented in the description of impact on “(surrounding) land of interests use and utilisation of local resources”, the difference of the development process between Dongo Kundu area and Kwale County is one of the main concerns of Kwale County and it might trigger some conflicts. Landscape C - The change of landscape in operation stage can be predicted in the subsequent EIA of each subproject after the allocation of enterprise is decided. Gender B+/B- - Employment in SEZ could provide women formal earning opportunities that were previously unavailable. Given the prevalence of poverty in Dongo Kundu and the sizable presence of women-headed households, the mix of industries to be set up in the Mombasa SEZ is likely to have significance gender implications, at least in the short-term. - On the other hand, rapid change of social environment does not provide the enough chance for women to be socialized and engaged with employment. - Female PAPs would face bigger problems in case that they have difficulties of adjustment to new livelihood. Children’s right B+/B- - The children’s right to education, health care and other social service would be improved due to the benefits of livelihood restoration and improvement of infrastructure. - More children, especially girls might be engaged in forced labour in domestic service, agricultural work, street vending and prohibited work as a secondary social impact. - The growth of the tourism industry might accompany an increase in children's involvement in prostitution. Infectious B- - Risk of infectious diseases might be increased due to influx of diseases such as employees as well as the impact in the construction stage. HIV/AIDS

Working C - The employees in Mombasa SEZ would be concerned about their conditions working conditions. The impact will be identified in the including subsequent EIA of each subproject. II-19 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Rating at Category Item the detailed Reason SEA occupational health and safety Others Accident A- - Increase in traffic would trigger the traffic accidents. The extent of impact depends on transportation system to be developed in Mombasa SEZ. - F ire, explosions and chemical/physical hazards etc might occur at facilities in operation. The extent of such impact depends on the type/scale of enterprise. - The detail impact shall be examined by EIA in the subsequent F/S of each subproject. Climate change A- - GHG exhausted from operation of facilities and transportation will increase significantly. The minimisation of GHG emission would be recommended for enterprise. The detail impact shall be examined by EIA in the subsequent F/S of each subproject.

A-: Significant negative impact is expected, if any measures are not taken against the impact. A+: Significant positive impact is expected. B-: Negative impact is expected to some extent, if any measures are not taken against the impact. B+: Some positive impact is expected. C+/-: Impacts are not clear and further examination is needed. D：No impact is expected

Source: JICA Study Team

II-20 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report II.6. Proposed Mitigation Measures

The mitigation measures for the negative or unknown impacts that were evaluated as A-, B- or C in Table II-5 are summarized in table below.

Table II-6: Mitigation Measures Category Item Mitigation Measures

Design Stage Pollution Bottom sediment - Optimisation of survey method Control

Natural Protected area - Optimisation of survey method Environm - Consultation with and approval by related authorities as needed ent Flora, fauna and - Optimisation of survey method biodiversity

Social Land acquisition and - Preparation of comprehensive RAP Environm involuntary resettlement - Information disclosure and public consultation ent Water usage - Coordination with related MPs supervised by County Government and other stakeholders - Information sharing and frequent consultation among the related agencies and projects Existing social - Coordination with the other existing facilities’ function infrastructures and services

Equality of benefits and - Information sharing and frequent consultation among the related losses and equality in the agencies and projects development process

Local conflicts of interests - Information sharing and frequent consultation among the related agencies and projects

Others Accident - Safety communication and training - Safety measures (Personal Protective Equipment etc.) Construction Stage Pollution Air pollution - Optimisation of construction device, method, schedule and Control transportation route etc. to minimize the effect to the sensitive receptor Water pollution - Minimisation of siltation from construction work and site - Optimisation of construction method and schedule etc. Waste - Equation of cut earth volume and filling volume - Development of waste management plan in the EIA Soil contamination - Soil contamination investigation, if the soil is transferred

Noise and vibration - Optimisation of construction device, method, schedule and transportation route etc. to minimize the effect to the sensitive receptor

Offensive odour - To be specified based on the type and scale of construction method to be designed. - The concrete mitigation measures will be suggested in the F/S of each subproject, as needed. Bottom sediment - Minimisation of siltation from construction work and site - Pollution control of effluents by construction works Natural Protected area - Consultation with and approval by related authorities as needed. Environm ent

Flora, fauna and - Enhancement of compensatory conservation in Mangrove biodiversity Reforestation Plan - Preservation of highly prioritized reservoir of biodiversity - Screening of original sites of material as a measure against instruction of invasive/alien species in construction materials

II-21 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Category Item Mitigation Measures Hydrological situation - Earthworks in dry season - Establishment of water channel or restoration pond for storm water Topography and - Soil stabilisation measures geographical features(incl. - Minimisation of soil generation from construction work and site ground subsidence) - Further investigation in the F/S of each subproject.

Social Land acquisition and - Development of comprehensive RAP for Dongo Kundu including the Environm involuntary resettlement livelihood restoration plan ent

Poverty - Development of comprehensive RAP for Dongo Kundu including the livelihood restoration plan Local economy such as - Development of comprehensive RAP for Dongo Kundu including the employment and livelihood livelihood restoration plan

(Surrounding) land use and - Development of comprehensive RAP for Dongo Kundu including the utilisation of local resources livelihood restoration plan

Water usage - Coordination with the other development plan - Information sharing and frequent consultation among the related agencies and projects Existing social - Development of comprehensive RAP including measures to secure the infrastructures and services accessibility to infrastructures and services for PAPs - Control of traffic route and avoiding or minimizing project transportation through community areas Social capital - Development of comprehensive RAP in consideration of assuring of relationship between people and social group Equality of benefits and - Information sharing and frequent consultation among the related losses and equality in the agencies and projects development process

Local conflicts of interests - Information disclosure and public consultation - Local sourcing of labour Cultural heritage - Reconnaissance survey and preservation of find-spot - Accessibility to Kaya shall be secured in the construction plan Landscape - Identification and prevention of aesthetic area - Buffer zone for the blind Gender - Gender based affirmative action on employment of woman as needed - Vocational training Children’s right - Development of comprehensive RAP for Dongo Kundu including the livelihood restoration plan - Support to improve the school enrolment rate and completion rate Infectious diseases such as - Development of HIV/AIDs prevention plan and awareness campaigns HIV/AIDS for workers

Working conditions - Management of working condition including occupational - Occupational health and safety training health and safety - Safety measures (Personal Protective Equipment etc.) - Provision of means to sanitation Others Accident - Fire prevention and control - Safety training - Safety measures (Personal Protective Equipment etc.) Climate change - Management of transportation system - Reforestation Operation Stage Pollution Air pollution - Introduction of cleaner production systems Control - Installation of exhaust gas treatment facilities - The specific measures will be elaborated in the EIA to be prepared by enterprise or developer as needed. Water pollution - Wastewater treatment facilities installed to meet requirement of target effluent water quality for the enterprise. - Septic tank installed in the residents. - Establishment of monitoring system for environmental accidents - Preparation of device to prevent the diffusion of hazard materials/oil - The specific measures will be elaborated in the EIA to be prepared by

II-22 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Category Item Mitigation Measures enterprise or developer as needed.

Waste - Reduction and recycle of waste - Proper treatment at landfill - Introduction of cleaner production systems - Proper management of hazardous waste by enterprise - The specific measures will be elaborated in the EIA to be prepared by enterprise or developer as needed. Soil contamination - To prohibit and prevent the leakage of hazardous material infiltrating into the soil

Noise and vibration - The specific measures will be elaborated in the EIA to be prepared by enterprise or Developer as needed.

Offensive odour - The specific measures will be elaborated in the EIA to be prepared by enterprise or Developer as needed. Bottom sediment - Pollution control of effluents by enterprise - Systematic erosion control to prevent erosion of soil including ground cover works and sediment pond with filter Natural Flora, fauna and - Integrated measures composed of conservation of mangrove forest, Environm biodiversity pollution control of basin area etc. ent

Topography and - Systematic erosion control to prevent erosion of soil geographical features (incl. - Development of dredging plan as needed based on the bathymetry ground subsidence) survey - The specific measures will be elaborated in the EIA to be prepared by enterprise or Developer as needed. Social Poverty - Development of comprehensive RAP for Dongo Kundu including the Environm livelihood restoration plan ent Indigenous people and - The regional development plan and is implementation in the long term ethnic minority shall be consulted with related local communities including Kaya elders and adaptive to their concerns, interests and aspiration. Local economy such as - Development of comprehensive RAP for Dongo Kundu including the employment and livelihood livelihood restoration plan - Encouragement of investment contributing the development of local economy (Surrounding) land use and - Development of comprehensive RAP for PAPs in the surrounding area utilisation of local resources - Coordination with the other development plans - Information disclosure and frequently consultation - Development of affirmative action plan including the skills upgrading program and simultaneous capacity building for local production Water usage - Coordination with the other master plan for city development and water resource - Development or utilisation of alternatives of water supply Equality of benefits and - Information disclosure and public consultation losses and equality in the - Development of regional master plan stimulating the economics of development process wider area - Development of affirmative action plan including the skills upgrading program and simultaneous capacity building for local production Local conflicts of interests - Information disclosure and public consultation - Development of regional master plan stimulating the economics of wider area - Development or utilisation of alternatives of water supply and other infrastructure service. Landscape - The specific measures will be elaborated in the EIA to be prepared by enterprise or developer as needed. Gender - Gender based affirmative action on employment of woman as needed - Vocational training Children’s right - To prevent children labour and facilitate their return to school as a means of improvement of school enrolment and gender equity in primary education, as needed. Infectious diseases such as - Development of HIV/AIDs prevention plan and awareness campaigns for workers II-23 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Category Item Mitigation Measures HIV/AIDS

Working conditions - The specific measures will be elaborated in the EIA to be prepared by including occupational enterprise or developer as needed. health and safety

Others Accident - Compliance of regulation and guidance of occupational health and safety Climate change - Energy conservation and efficient energy use at SEZ - Efficient management of transportation system Source: JICA Study Team

II. 7. Environmental and Social Management Framework

The appropriate environmental and social management at each implementation stage of development of Dongo Kundu area will be secured by the environmental and social management plan shown in Table II-7. The environmental and regulatory requirement will be monitored by each responsible authority.

II-24 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report Table II-7: Environmental and Social Management Framework No. Target Management Plan Monitoring Plan

Output Prepared Period Item Implementing Item of Description Responsible by Organisation( expenses organisation Burden of Costs) *

1 EIA for each SEZ Before The result of this SEA shall SEZ EIA preparation In the course of NEMA project Developer, construction be reflected to EIA. Developer, cost preparation and at the enterprise of each project enterprise timing of review of EIA, its harmonisation with SEA shall be checked. 2 RAP for KPA or Before The result of this SEA shall KPA or RAP It is suggested that a Related authorities Dongo Kundu developer construction in be reflected to EIA. developer preparation cost RAP for the whole including NEMA, area Dongo Kundu Dongo Kundu area shall Mombasa County area be prepared coordinating Government with this SEA and other etc.(RAP will be development project in reviewed by Dongo Kundu area. stakeholders, as well as EIA’s procedure)

3 Construction Contractor Before/during The result of EIA will be Contractor CEMP Based on the EIA, the NEMA Environmental construction reflected. Preparation cost Construction Management Environmental Plan (CEMP) Management Plan will be for prepared and construction implemented.

4 Environmental Enterprise During The environmental audit of Enterprise/ Environmental The requirement by EIA NEMA and Audit Report/ operation all activities that are likely to Owner of the Audit Study shall be put in the Environmental Annual report have significant effect on the premises or cost operation activity. Department of MCG environment shall be carried the operator of monitor the out. a project compliance of EIA and implement regular monitoring.

5 Mangrove KPA, Before - The result of this SEA To be Preparation of Kenya Forest Service KFS is responsible Reforestation project construction - shall be reflected to considered** Mangrove and other government for the protection of Plan(MRP) proponent operation EIA. Reforestation agencies need lead to mangrove forest. of power enhance the reforestation

II-25 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report No. Target Management Plan Monitoring Plan

Output Prepared Period Item Implementing Item of Description Responsible by Organisation( expenses organisation Burden of Costs) *

plant -The plan needs to be Plan activities. harmonised with EIA and each project activities. 6 Archaeologica National Before - Impact assessment on AIA is Preparation cost Before and in the course NMK l Impact Museum of carrying out of areas of cultural heritage implemented of of feasible study of Assessment(A Kenya(NM development resources should be by NMK, Archaeological project which would IA) K) conducted prior to borne by Impact require the AIA, the development. Project Assessment project proponent should proponent consult with NMK.

7 Other related Master Not specified - Coordination between the Master plan Preparation of Linkage with demand of County Government MP such as plan development ofDongo proponent MP infrastructure or any is responsible for County proponent Kundu area and the other other activities in Dongo physical development development MPs Kundu area shall be planning. plan confirmed.

FS: Feasibility Study, DD: Detailed Design, MP: Master Plan, MCG: Mombasa County Government, Mangrove Reforestation Plan :Mangrove RP SEZA: Special Economic Zones Authority * The role of SEZA and other responsible organisations will be defined after the SEZ Act is entered into force. ** The planning method and implementation structure of Mangrove Reforestation Plan is not determined yet as of this Master Plan phase. Source: JICA Study Team

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II. 8. Sample TOR and for Environmental Impact Assessment for the Specific Project to be Planned in Dongo Kundu Area

An Environmental Impact Assessment study will be required for a variety of specific projects by enterprises who invest in the SEZ. The sections below are prepared to guide the preparation of the Terms of Reference (TOR) for individual development projects with significant environmental and social impacts.

1. Sample Terms of Reference (TOR) for Environmental Impact Assessment for Industrial Facilities in Mombasa SEZ

Note: This is a generic document highlighting key contents to be included in the TOR and will need to be adapted for each project based on its specific nature, location and likely impacts.

A. Introduction. This section will state the purpose of the terms of reference, identify the industrial development project to be assessed, and explain the executing arrangements for the environmental assessment. Industrial development projects include, but are not limited to: industrial production facilities (e.g., chemical, petrochemical, pulp and paper, iron and steel, nonferrous metals, petroleum refining, cement, fertilizer, and food processing plants); raw materials sources (e.g., mines and wells, and related handling, processing and storage facilities); raw materials and product transportation facilities (e.g., marine terminals, deep water ports, pipelines, roads, rail); and industrial pollution control facilities (e.g., waste minimisation systems, hazard reduction and emergency response systems, air emission control, wastewater treatment, residual disposal).

B. Background This section will provide pertinent background for potential parties who may conduct the environmental assessment, whether they are consultants or government agencies. The section will include a brief description of the major components of the proposed project, a statement of the need for it and the objectives it is intended to meet, the implementing agency, a brief history of the project (including alternatives considered), its current status and timetable, and the identities of any associated projects. If there are other projects in progress or planned within the region which may compete for the same resources, the same shall be identified within this section.

Major components of an industrial project to be described herein include, as appropriate: local and foreign raw material sources (e.g., hard rock mines, oil/gas wells, chemical plants, slaughterhouses, produce farms); processing operations (e.g., process flow sequence, continuous or batch, size, production); expected markets for products (e.g., local and foreign markets); transport systems

II-27 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report (e.g., roads, pipelines, rail, barge); pollution control systems (e.g., source reduction and recycling to minimise wastes, stack gas emission control, non-point source emission control, wastewater treatment and discharge, solid waste disposal, spill prevention); supplies (e.g., location of stocks of parts and chemicals, transport routes); staffing (e.g., numbers of workers, skill requirements); services (e.g., fire protection, security, transportation, medical); and community involvement (e.g., worker housing during construction).

C. Objectives This section will summarise the general scope of the environmental assessment and discuss its timing in relation to other aspects of project preparation, design, and execution. This section will identify constraints, if any, regarding the adequacy of existing environmental assessment baseline data and needs to phase additional data collection (e.g., over several seasons) and assessment efforts so as not to hinder the rest of the project development schedule. A reference should be made to the objectives and recommendations proposed in the SEA study for the Master Plan to ensure that the TOR builds on key issues that have been identified already.

D. Environmental Assessment Requirements This section will identify regulations and guidelines, which will govern the conduct of the assessment or specify the content of its report. They may include any or all of the following: ・ The Environmental (Impact Assessment and Audit) Regulation, 2003 and other relevant Kenyan regulations under EMCA 1999; ・ Draft Environmental Impact Assessment Guidelines and Administrative Procedures by NEMA, 2002 ・ Other sector-specific laws and regulations in Kenya as relevant; ・ World Bank Operational Directive 4.00, Annex A: 'Environmental Assessment," and other pertinent ODs, OMSs, OPNs, and Guidelines; ・ Environmental assessment regulations and guidelines of any other financing organisations involved in the project

This section will identify design or operating standards which project components must address to be environmentally and socially acceptable. This will include, for example, effluent discharge limitations, air emission standards, receiving water quality standards, and occupational health and safety requirements.

E. Study Area This section will specify the boundaries of the study area for the assessment. Where appropriate, specify the right-of-way (ROW) width and alignment for pipelines and transportation corridors for raw material and product shipments. If there are adjacent or remote areas which should be considered with respect to impacts of particular aspects of the project, they shall be identified as II-28 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report an added demand for supplies from this remote facility may cause an environmental impact to the remote area. For example, construction of relevant facilities may intensify sand mining in neighbouring area and new housing areas may need to be developed outside the project site to accommodate workers). Given the importance of Kaya forests in the area, potential impacts to them should be carefully analysed even if the proposed project is not adjacent to Kaya forests.

F. Scope of Work In some cases, the tasks to be carried out by a consultant will be known with sufficient certainty to be specified completely in the terms of reference. In other cases, information deficiencies need to be identified and addressed or specialized field studies or modelling activities performed to assess impacts, and the consultant will be asked to define particular tasks in more detail for contracting agency review and approval.

Task 1. Description of the Proposed Project Provide information on the following: location of all project-related development sites; general layout of facilities at project-related development sites; flow diagrams of facilities/operations; design basis, size, capacity, flow-through of unit operations; pre-construction activities; construction activities, schedule, staffing and support, facilities and services; operation and maintenance activities, staffing and support, facilities and services; reclamation activities, such as in mining projects; required off-site investments; life expectancy for major components.

Provide maps at appropriate scales to illustrate the general setting of project-related development sites, as well as surrounding areas likely to be affected. These maps shall include topographic contours, as available, as well as locations of major surface waters, roads, public and private structures, and political boundaries.

Task 2. Description of the Environment Assemble, evaluate and present baseline data on the environmental characteristics of the study area. Include information on any changes anticipated before the project commences.

Physical environment: geology: topography (e.g., drainage patterns around construction areas, view-sheds around facilities); soils (special attention to be paid to Dongo Kundu’s soil which is susceptible to erosion); climate and meteorology (e.g., precipitation patterns at residue disposal sites, levels of GHG emissions); ambient air quality (e.g., ability to assimilate emissions and maintain air quality standards, taking into account other investments that are planned/ongoing in Dongo Kundu); surface water hydrology (e.g., soil erosion and sedimentation potential, flood hazard potential); water resources; coastal and oceanic parameters (e.g., dispersion potential at effluent discharge locations); receiving water quality (e.g., ability to assimilate effluent discharges and maintain water quality standards for desired uses); significant pollutant sources in the area and II-29 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report prospect for their mitigation.

Biological environment: flora and fauna; rare or endangered species within or in areas adjacent to project-related development sites; sensitive habitats, including mangrove and Kaya forests

Socio-economic environment: population (i.e., full time and seasonal); planned development activities; public structures; employment and labour market; distribution of income, goods and services; recreation; public health; education; cultural properties (archaeological assessment should be included in EIA (or carried out as stand-alone assessment) given the history of human settlement in Dongo Kundu); community aspirations and attitudes.

Task 3. Legislative and Regulatory Considerations Describe the pertinent regulations and standards governing environmental quality, health and safety, protection of sensitive areas, protection of endangered species, siting, land use control, etc., at international, national, regional and local levels. The work should build on what has been identified and analysed in SEA.

Task 4. Determinations of the Potential Impacts of the Proposed Project Identify all significant changes which the project would incur. These would include, but not be limited to, changes in the following: wastewater effluents, air emissions, solid wastes, infrastructure, employment opportunities, exposure to disease, risk of industrial hazard, noise, traffic, likely changes in socio-cultural perceptions.

Assess the impacts from changes brought about by the project on baseline environmental and social conditions as described above under Task 2. In this analysis, distinguish between significant positive and negative impacts, direct and indirect impacts, and immediate and long-terms impacts. Identify impacts which are unavoidable or irreversible. Wherever possible, describe impacts quantitatively, in terms of environmental costs and benefits. Assign economic values when feasible. Impact analysis for industrial projects should be divided between impacts during the construction stage and those during the operation.

Assess the risk of occurrence of potential industrial hazards (e.g., accidental spills, fires, explosions, impoundment structural failure, gaseous releases). Consider the ability of the public authority and/or community to provide emergency response services for potential industrial hazards. Based on the above, assess the potential impacts.

Characterise the extent and quality of available data, explaining significant information deficiencies and any uncertainties associated with predictions of impact. For information which could not be obtained until after project execution commences, provide TOR for studies to monitor operations over a given time period and to modify designs and/or operational parameters

II-30 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report based upon updated impact analysis. Task 5. Analysis of Alternatives to the Proposed Project The environmental assessment should include an analysis of reasonable alternatives to meet the ultimate project objective. The analysis may lead to designs that are more sound from an environmental and socio-economic point of view than the original project proposal. The concept of alternatives extends to location, design, technology and material used, construction techniques and phasing, and operating and maintenance procedures. Include the “zero option” – no project alternative – in order to demonstrate environmental conditions without it. Analysis of Alternatives should include the assessment of the following: alternative means of meeting project goals; alternative sites and design; and alternative methods of construction and operation, including costs and reliability.

Describe how the alternatives compare in terms of potential environmental impacts; capital and operating costs; suitability under local conditions such as skill requirements (special attention shuld be paid to generally unskilled labour in Dongo Kundu), political acceptability, availability and level of technology; and monitoring requirements. When describing the impacts of alternatives, indicate which impacts would be irreversible or unavoidable and which could be mitigated.

To the extent possible, quantify the costs and benefits of each alternative, incorporating the estimated costs of any associated mitigating measures. Describe the reasons for selecting the proposed project over the other alternatives.

Task 6. Development of Management Plan to Mitigate Negative Impacts For the proposed project, recommend feasible and cost-effective measures to prevent or reduce significant negative impacts to acceptable levels. Include measures for emergency response to accidental events (e.g., leaks, accidents, fires and explosions), as appropriate. Estimate the impacts and costs of those measures, and of the institutional and training requirements to implement them. Prepare a management plan including proposed work programmes, budget estimates, schedules, staffing and training requirements, and other necessary support services to implement the mitigating measures.

Task 7. Identification of Institutional Needs to Implement Environmental Assessment Recommendation Review the authority and capability of institutions (e.g., SEZA to be established, Mombasa County Government, KPA among others) and recommend steps to strengthen or expand them so that the management and monitoring plans in the environmental assessment can be implemented effectively. The recommendations should be harmonised with the institutional and operational framework to be established for the SEZ and may include additional inter-sectoral arrangements, II-31 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report management procedures and training, staffing, operation and maintenance training, budgeting, and financial support.

Task 8. Development of a Monitoring Plan Prepare a detailed plan to monitor the implementation of mitigating measures and the impacts of the project during construction and operation. Include in the plan an estimate of capital and operating costs and a description of other inputs (such as training and institutional strengthening) needed to conduct it.

Task 8. Public Participation The Environmental (Impact Assessment and Audit) Regulation, 2003 requires that at least three public meetings be held with the affected parties and communities to explain the project and its effects, and to receive their oral and written comments (section The 17 (b)). During the EIA study, the provision of the above and other relevant requirements must be provided in order to facilitate involvement and participation of affected persons and ensures a sense of responsibility and commitment towards implementing the proposed EMP.

G. Report Provide an environmental assessment report which is concise and focus on significant environmental issues. The main text should focus on findings, conclusions and recommended actions, supported by summaries of the data collected and citations for any references used in interpreting those data. Detailed or uninterrupted data are not appropriate in the main text and should be presented in appendices or a separate volume. NEMA’s draft guideline in 2002 identifies the following contents for the EIA report, but it can be adopted as appropriate (e.g., to satisfy specific needs and requirements of financing agencies)

(i) Executive summary, (ii) Acknowledgement and (iii) Acronyms Chapter 1 - Introduction Chapter 2 - Project Description Chapter 3 - Baseline Information Chapter 4 - Policy, Legal and Institutional Framework Chapter 5 - Impact Assessment Chapter 6 - Analysis of Project Alternatives Chapter 7 - Environmental Mitigation Measures and Environmental Management Plans Chapter 8 Conclusions and Recommendations References and Appendices

H. Required Skills for Consultant Team The environmental assessment requires interdisciplinary analysis. The general skills required of an II-32 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report environmental assessment team are: environmental management planning, ecology, socio-economics, ecology, hydrology/hydrogeology, air quality analysis, water quality analysis, transportation planning. For an industrial project, the project team will be specified to include specialists appropriate to the type of components in the industrial project as needed (e.g., for industrial manufacturing plants, an industrial process engineer, and air quality specialist; for industrial wastewater treatment, a civil/sanitary engineer and aquatic biologist). The TOR should also provide an estimate of staff weeks/months required.

I. Schedule This section will specify dates for progress reviews, interim and final reports, and other significant events.

J. Other Information Include here lists of data sources, project background reports and studies including the SEA report, relevant publications, and other items to which the consultant's attention should be directed.

2. Project-specific Consideration for Port Development for Environmental Impact Assessment in Dongo Kundu Area

Note: This is a generic technical reference document highlighting key contents to be considered in the EIA for port development project and will need to be adapted at the feasible or design study stage based on its specific nature, location and likely impact.

A. Introduction The port development planned in the north area of Dongo Kundu is expected to involve the significant change of natural and social resources. This document provides a summary of key potential impact and method for survey and impact prediction primarily associated with the port development project as well as brief ideas of alternative plan to be developed at the forthcoming EIA stage, while the general contents for TOR for EIA is guided by “Sample Terms of Reference For Environmental Impact Assessment for Industrial Facilities in Mombasa SEZ” (hereafter referred to as “the Sample TOR for EIA in Mombasa SEZ”).

B. Major Potential Impact Induced by Port Development The following activities on port and terminal construction and operation are generally addressed as causing major potential impacts on environment.

 Port operations involve the combustion emissions from ships’ engines and boilers  Ship sewage and wastewater discharged from port activities contain high levels of BOD and Coliform bacteria, oil, and other chemicals.

II-33 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report  Various types of solid and liquid wastes are generated associated with port operations and ships serviced.  Noise and vibration sources in ports include cargo handling, vehicular traffic, and loading / unloading containers and ships.  Ship and port activities handle various types of hazardous substances as well as oil and fuels.  Dredging works and disposing of dredged materials, construction of piers, wharves, revetments and other water-side structures, and erosion or sediment may lead to short and long- term impacts on aquatic and shoreline habitats.

The port development with dredging works results in the wide-range of both direct and indirect impact. The direct impact includes the physical removal and disturbance of aquatic and tidal flora and fauna, while indirect impact may result from changes in water quality and flow, sedimentation or discharges of storm water and wastewater. Additionally, the discharge of ballast water from ships and sediment during port operations may cause the introduction of invasive aquatic species. Deterioration of ecology results in loss or damage to fisheries and fragile coastal habitats such as coral reefs, mangroves, and sea grass beds. Table A-8 lists the potential adverse impact caused by port development that should be highlighted in its EIA in addition to the contents of the Sample TOR for EIA in Mombasa SEZ.

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Table II-8: Major Adverse Impact Potentially-induced by Port Development Source Construction and dredging Port operation Ship traffic and discharges Cargo operations and waterfront industry

Impact item Water quality - Short-term increase in turbidity and - Deterioration of water quality due to ship - Deterioration of port water quality due transparency by dredging and other (ballast water, oil waste, lubricant and to effluent from waterfront port construction work fuel spills, sewage and other residues in a activities involving the spills of oil, - Changes in water flow at dredging ship) lubricants, fuels and other harmful site and disposal site of dredged materials materials - Changes in current flow and stagnation of water behind the constructed structures - Oil spills and leakage of other substances into water by work vessels and concrete work Coastal - Changes in littoral drifts due to - - hydrology alteration of wave refraction - Changes in current patterns and flows as well as salt wedge intrusion into a river mouth by dredging and landfill Bathymetric - Changes in bathymetry, and - - Bottom contamination by runoff from feature and sedimentation patterns at dredging quay and storage area, spills from bulk bottom site and disposal site cargo operations, and wind-blown dust contamination - Dispersal of toxic chemicals leading a loss of bottom habitat and fishery resources due to dumping - Sedimentation in stagnant water behind newly constructed structures accelerating the contamination of the sea bottom - Sedimentation of dead plankton and changes in chemical characteristics

II-35 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source Construction and dredging Port operation Ship traffic and discharges Cargo operations and waterfront industry

Impact item of bottom sediments induced by water eutrophication, resulting in an increase of organic matter, hydrogen sulphide, and mobilisation of harmful substances Marine/Coastal - Effect on aquatic fauna and flora - Damage to aquatic flora and fauna and - Deterioration of aquatic biota and ecology through changes of water quality, coastal habitat due to leakage of oils, oily fishery resources resulting from water coastal hydrology, and bottom wastes and mixtures as well as pollution and bottom contamination contamination generation of polymerized oil particles - Changes in terrestrial habitat and plants - Removal of bottom biota by and toxic aromatic fractions by by dust dispersion on land. dredging and covering of bottom biodegradation of oil biota by dumping of dredged - Deterioration of fishery resources material, both of which reduce affected by damage on marine and fishery resources coastal ecology - Loss of bottom habitat and displacement of fishery resources by land reclamation and other construction activities - Alternation of terrestrial fauna and flora by land reclamation other construction activities Air quality - Air pollution by dust from - Air pollution by emissions from a ship - Emissions of dust from bulk cargo construction activities such as gasses, smoke, soot and fumes as handling and gasses from cargo - Air pollution by emissions from represented by NO2 and SO2 handling equipment construction equipment, work - Accidental leakage of gasses such as vessels, trucks and other vehicles toxic material emission, explosions, used in construction work fumes and odors Noise and - Noise and vibration by construction - Noise and vibration due to blasting and - Noise and vibration by cargo handling vibration equipment, truck traffic, work other civil works equipment and road traffic vessels and other similar sources Waste - Waste from construction activities - Oily wastes (e.g., bilge water, ballast - Wastes by cargo operations (e.g.,

II-36 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Source Construction and dredging Port operation Ship traffic and discharges Cargo operations and waterfront industry

Impact item management and dredging water, washing water, lubricant oil), remains of bulk cargo storage, rubbish - Destruction of plants, loss of sewage and garbage; and cargo residues from unpacking, wood bark from log vegetation, leakage of contaminated such as wood bark generated by ships handling), floating garbage and other materials and salt, odor, an - Oil pollution, floating garbage, wastes from daily activities unsightly view and other nuisances unsanitary conditions, odor and other to the local community if dredged degradation of water quality by material is disposed on land generated wastes Visual quality - Changes in landscape and - - Nuisances to the nearby community by unpleasant impression to people by lighting for night operations some port facilities Social impact - Resettlement of people in the port - Damage to tourism and fisheries if oil - Conflict with a local community by development area and oily wastes discharged from ships labour from outside - Other social concerns and conflict reach nearby beaches and spoil - Changes in the life style of local people relating to loss or changes in living recreational activities or marine product induced by urbanisation and conditions and livelihood of project - Nuisances to fishery boat operations by industrialisation affected people caused by ship traffic - Damage to health of port workers and construction activities - Changes in the life style of local people neighbours in case of an environmental induced by crew on a ship accident involving emission of toxic or harmful substances Reference: United Nations, Assessment of the Environmental Impact of Port Development. 1992

II-37 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report C. Summary of Method of Survey and Prediction In addition to the contents of the Sample TOR for EIA in Mombasa SEZ, the survey and prediction method for EIA study to be required for the abovementioned port-specific considerations are listed below. The scope and method shall be adjusted to the local human and technical resources including the available data, monitoring equipment and prediction model for each EIA.

1) Water Pollution - On-site measurement and laboratory analysis of water quality - Estimation of the amount of pollutants in a particular water area - Prediction of water pollution, turbid water and eutrophication by using the numerical equation and/or simulation model 2) Coastal hydrology - Survey of tides, currents and waves - Prediction of changes in coastal hydrology 3) Marine and coastal ecology - Survey on marine and riparian biodiversity 4) Air quality - Survey on air pollution - Prediction of impacts on air quality for gas emission and dispersion 5) Noise and vibration - Noise survey - Prediction of noise and vibration level from project activities 6) Others - Social impact as well as other environmental impact will be assessed by the similar method as the Sample TOR for EIA in Mombasa SEZ

D. Alternative Plan The port project alternative can be suggested in terms of reclamation area (e.g., line of revetment and configuration), number and layout of berths, dredging method and dredging area, disposal options for dredged materials including the method and location (e.g., on-land disposal, sea disposal), structure of construction and facilities (e.g., terminals, quays, wharves, and facilities for handling cargo from shore to vessel or vessel to shore) as shown in the examples of Figure A-1 and Figure A-2. The alternative plan will be evaluated in aspects of impacts on coastal/marine hydrology and ecology as well as the other environmental and social impacts, cost, level of technology, relevance of demand and policies, and efficiency of operation.

II-38 Project on Master Plan for Development of Mombasa Special Economic Zone Final Report

Plan A Plan B Plan C

Source: JICA Study Team Figure II-1: Example of Alternative Plan of Reclamation Area

Plan A：Concrete block type Plan B: Pier type

Source: JICA Study Team Figure II-2: Example of Alternative Plan of Different Structures of Revetment

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