Special Economic Zones and Competitiveness of Foreign Direct Investment Manufacturing Firms in Kenya

Abstract

Special Economic Zones are designated areas within a nation's borders with the objectives of improving trade balance, attracting more investment, creating jobs, and enabling efficient administration. In Kenya, SEZs benefit from business-enabling policies and sector-appropriate on-site and off-site infrastructure and utilities. For the last 20 years, the Government of Kenya has been investing on Special Economic Zones as one among the innovative strategies geared towards enhancing competitiveness of Foreign Direct Investment firms in the manufacturing sector. While it is noteworthy that SEZs have somehow contributed to the increase in the inflow of FDIs in the manufacturing sector in Kenya, it is equally important to point out that such improvement is not commensurate with the size of Kenya’s economy as well as the level of investment put in by the Government. In fact, in a more worrying trend, a good number of FDIs have ceased their manufacturing operations in the country to retain only the marketing and distribution functions of their businesses, a decision that has cut thousands of jobs. These FDIs have shifted focus to offshore manufacturing. Therefore, this paper is the product of the study carried out to establish the influence of SEZs on the competitiveness of FDI manufacturing firms in Kenya. Specifically, the study focused on the influence of; technology spillovers, labour availability, market accessibility and level of export, on competitiveness of FDI manufacturing firms in Kenya. A cross-sectional research design was used in the study. The unit of analysis was the management staff of 66 manufacturing FDIs who were members of Kenya Association of Manufacturers (KAM) in the Nairobi Metropolitan while the unit of observation comprised; human resource manager 1, finance manager 1, marketing manager 1, production manager 1 and CEO/GM/owner 1. Multistage sampling method was used in the study. Multistage Sampling is the probability sampling technique wherein the sampling is carried out in several stages such that the sample size gets reduced at each stage. At the initial stage, the study applied Yamane formula to determine the number of firms in each of the 9 categories for the study. From the selected firms, 5 members of management (1CEO and 4 Managers) were selected using purposive sampling technique. Lastly, Yamane formula was used to arrive at the final sample size. This resulted to a total population of 325 and a sample size of 283. Primary data was collected through a semi-structured questionnaire while secondary data involved analysis of statistical abstracts from published materials and reports. Data analysis was carried using the statistical package for social sciences (SPSS) software version 25 as well as descriptive and inferential statistics. Primary data was collected through a semi-structured questionnaire while secondary data involved analysis of statistical abstracts from published materials and reports. Data analysis was carried using the statistical package for social sciences (SPSS) software version 25 as well as descriptive and inferential statistics. In the overall the study found that special economic zones had influence on competitiveness of FDI manufacturing firms in Kenya, however the findings on some of the sub-variables calls for their review and relevant actions taken by the Government to ensure enhancement of competitiveness of FDI manufacturing firms. This is because about 37% of the respondents either moderately or never at all agreed that there was conducive business environment in their zones. Further, the study found that over 51.4 % either moderately or never at all agreed that other firms had acquired technology and skills from the FDI firms in the Zones. Consequently, the study recommends an evaluation of the policies and infrastructure that support SEZs in the Manufacturing sector in Kenya.