Kenya’s Two Rivers Offers Template For Attracting Investors

Kenya’s Two Rivers Offers Template For Attracting Investors

In the capital Nairobi just about half an hour from the city’s central business district sits Two Rivers International Finance & Innovation Centre, one of Kenya’s largest real estate development project and the country’s fastest growing commercial city.

It is located along the diplomatic blue zone on an elevated land that gives one a glimpse of what Nairobi has to offer. From its location, one is able to visibly see some of Nairobi’s skyscrapers and the famous Nairobi National Park.

Two Rivers is a beehive of activities. Hundreds of people crisscross the commercial centre, shopping at their favorite brands, dining at their preferred restaurants, coffee shops or bars, while others enjoy funfilled activities such as quad biking and go-karting.

The commercial area is home to what is currently considered the largest mall in East Africa, Two Rivers Mall, which houses some of the leading domestic and international brands including the French retailer Carrefour, Turkish luxury fashion line LC Waikiki, global brands Woolworths, Hugo Boss, Levi’s and Nike, as well as some of Kenya’s leading banking brands such as Standard Chartered Bank, Kenya Commercial Bank, NCBA, ABSA, and Stanbic.

The estate is also home to one of the largest theme parks, a karting ground, Tron City that comprises quad bikes, interactive robot games, kiddy cars, Virtual Reality experiences, trampolines, and bouncing castles, as well as hotel brands such as Loft Residences, Riverbank Apartments, and Holiday Inn where I had a chance to stay for a couple days last year on a work trip.

Two Rivers International Finance & Innovation Centre is Kenya’s first services-focused Special Economic Zone. Unlike, the typical special economic zones which largely target manufacturing, agriculture, and export and import players, Two Rivers is focused on supporting business services such as fintechs, management consulting, advisory services, and investment firms.

Services sector special economic zones are an integral link to the government’s bottom-up economic transformation agenda. At least that is the conviction of Abubakar Hassan Abubakar, Principal Secretary at Kenya’s Ministry of Investments, Trade and Industry.

Two Rivers is arguably a template for how a country can attract investors who are looking to tap into the most preferential tax treatments when setting up their businesses, and are trying to avoid the pain of going through the hustle of navigating long and often painful processes of processing work permits, and other business onboarding processes.

This is especially true in Kenya where the current regime has been increasing taxes, introducing new bureaucratic hurdles, and where rising inflation has led to the devaluation of the Kenyan Shilling, which has seen the cost of doing business rise.

Why That’s a Big Deal

If you were a business focused on services and set up shop elsewhere other than at Kenya’s Two Rivers, you will charge clients a 16 per cent value added tax, in addition to paying a 30 per cent corporate income tax, along with a host of other taxes.

Two Rivers relieves this burden by companies in the zone to only pay a 10 per cent Corporate Income Tax (CIT) for the first 10 years. Its special economic zone rules also eliminate the state-mandated VAT.

Companies hosted at Two Rivers Centre are exempted from paying stamp and excise duties, import declaration fees, and payment of advertising and business service permit fees, among other incentives.

The special tax policy also relieves foreign investors operating at Two Rivers from massive tax burden when they are repatriating their profits.

In a nutshell, special economic zone enterprises can fully repatriate all capital and profits without any foreign exchange impediments, for instance, foreign investors will only pay 0 per cent tax on repatriation of their dividends.

Two Rivers Centre, spanning over 64 acres, is backed by Centum Investment, one of Kenya’s largest investment companies. At a tune of USD92 million in infrastructure investment, Centum along other investors are building one of the largest commercial hubs in the region.

James Mworia, Centum Group CEO, believes the Centre will revolutionize Kenya's economic landscape.

The development of Two Rivers Centre involved large and complex financing with several entities, including AVIC International, ICDC and the Co-operative Bank of Kenya, with $155 million of funding in debt and equity, and AVIC investing $70 million, the equivalent of a 38.9% stake in equity into the project.

The investment by AVIC is one of the largest foreign direct investments in the region by a Chinese corporation in a private enterprise.

According to Centum, the centre has attracted investments of over $150 million to-date from local and international investors, created 2,000 jobs and has been adopted as a Kenya Vision 2050 flagship project.

Two Rivers International Finance & Innovation Centre recently tapped the former CEO of General Electric East Africa, Brenda Mbathi to drive the strategic growth of Two Rivers, signaling yet another move that Centum has a long term view to Kenya and higher risk appetite for the country.

Seizing the Services Momentum 

Kenya’s has the largest economy in the East African region and the country has been growing steadily. The decade before the Covid-19 pandemic (2010-2019), Kenya maintained a steady annual growth rate of 5 per cent and the economy was able to rebound relatively rapidly from the pandemic.

Much of that growth has been driven by the services sector, which on average has been outgrowing agriculture and industry. The services sector grew by 9.6 per cent in 2021 and 6.7 per cent in 2022.

Kenya’s economy is projected to expand by 5.5 per cent in 2023 relative to 4.8 per cent in 2022, and by above 6 per cent on average in the medium term. The growth projection will be supported by the services sector, which is projected to grow by 5.4 per cent in 2023 and by 5.6 per cent on average in the medium term (2024 and 2025) from 6.7 per cent in 2022.

Kenya has potential to grow rapidly, however, how much the country can achieve sustained growth in the future depends on how it supports the services sector, and specifically facilitating private investment and productivity growth.

The World Bank suggests focusing on high-value-added services, or what it calls, “global innovator” services such as information technology, financial, and professional services. These services currently employ only 2 per cent of the workers in the economy, but they contribute to 14 per cent of GDP and 19 per cent of growth.

Growing these services, the World Bank argues, can provide important benefits but will also require a skilled workforce.

What is true is that Kenya’s services sector has potential to enable economy-wide growth, including in manufacturing and agriculture.