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Export Processing Zones

DrAmeru

Free Trade Zones Key To Industrialisation, Says Meru

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RETIRED Permanent Secretary and investment
consultant, Dr Adelhelm Meru, has called on state and private sector decision
makers to adequately use existing economic processing zones to speed up the
country’s industrialisation drive and make Tanzania a middle-income nation in
the next seven years.

Dr Meru told a Public-Private Dialogue meeting that attracted senior
government officials and members of the Tanzania Private Sector Foundation
(TPSF) in Dodoma recently that present zones should be profitably used and more
zones created.

Dr Adelhelm Meru        (Photo credit: Alleastafrica)

He said at the moment creation of industrial parks is inevitable. He defined
an industrial park as an area zoned and planned for the purpose of industrial
development, further explaining that the park is one form of special economic
zone (SEZ).

Dr Meru described an SEZ as selected geographical area which is provided
with special business environment to promote priority economic activities,
adding that the SEZ may include industrial parks, Export Processing Zones, free
trade zones, free ports, tourist parks, science and technological parks.

The consultant said Ethiopia, Kenya and Rwanda have made significant
economic gains by making good use of economic processing zones. Outside Africa,
he named China as the country, which he said has used the zones to make
economic wonders within three decades.

He explained that since l978, China has focused on producing and exporting
products from EPZs, turning itself into a world economic giant. “China has made
miracles in the world of industries. It has made huge development strides using
industries. In 2010 Chinese economy was declared the second largest economy in
the world,” he said. Dr Meru called on Tanzania’s decision makers to take a
leaf from China.

SUCCESS STORY OF FREE TRADE ZONES IN AFRICA: FOCUS ON MAURITIUS.

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Several African countries were pioneers in using
Free Zones as economic development tools. Liberia and Senegal, for example
established Export Processing Zones in the early 1970s. In 1981, Mauritius
started a single factory-based EPZ program whose prominence and success led to
a wave of zone development throughout the continent in the late 1980s in East,
Southern and West Africa. Uganda is currently on the same model in their
exploration of the scheme.
Mauritius has become the model of a successful EPZ
programme in Africa; it provides important lessons for other EPZs. Its
importance in the economy is indicated by the growing share of EPZ’s export in
total exports which rose from 25% in 1978 to over 65% by 1998. Over the years
there has been a continuous increase in the share of value added by EPZs in
total manufacturing which by 1999 reached over 50% of 13% of total  Gross Domestic Product (GDP). One of
the most important economic benefits of the EPZ programme has been the
diversification of the Mauritian economy. 

In the mid-1960s, exports from
Mauritius consisted solely on agricultural goods, primarily sugarcane,
accounting for about 70% of all exports. By 1990 and as a result of EPZs,
Mauritius exports a variety of manufactures with sugar’s share having fallen to
29.6% of total exports, while EPZ exports rose from 31% to 64% during the same
period. This increase in the export of manufactured goods has played a critical
role in reducing the nation’s vulnerability to price fluctuations associated
with primary commodity exports. An analysis by country of destination shows that
66% of the exports were to countries of European Union spurred by the
favourable conditions offered by the Lome convention.
An examination of the factors behind the success of
Mauritius suggest that the following played a key role:

  • The desire to use Mauritius’s membership
    of the Lome Conventions to get preferential access to the EU market;
  • Cultural ties play a critical role in
    attracting investors from Hong Kong for a safe haven to invest their capital
    following the British-Chinese agreement to revert Hong Kong to China in 1997;

  •  Quota-free access to US markets during
    the early stages.

  • The existence of a flexible and
    supportive government, in conjunction with political and social stability.
Mauritius is an outstanding example of success in
the African region. It managed to utilize a favourable incentive package,
consequential on duty free access to the European Community under the Lome
Convention.
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An Overview of major trends in Free Zone Development.

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The problem with most  human endeavour is the
problem of moving with the tide and effect changes when it is needed.
There have been profound changes in the Free Zone
concept and development approach, since the first modern zone was established
in Ireland in 1959, and even more fundamental changes are foreseen over the
next decade with full implementation of the WTO Agreement.
This can be consented to by the expansion in the
types of Zones in both developing and industrialised countries. Countries are
now facilitating the development of Zones to meet specific objectives and
target markets. Traditional Export Processing Zones (EPZs) are increasingly being augmented and most times supplanted by new, more flexible arrangements. Hybrid EPZs
are the preferred model in most Central and East European Countries and
increasingly among many Latin American countries. Commercial Free Zones have
been the traditional development norm among most Middle East and North African
Countries, but this is a recent innovation in Asia, where Zone development has
emphasized export manufacturing.
Free Zones were traditionally developed as isolated
enclaves both in terms of their underlying policy framework, and in terms of
geographic location. Access to a generous set of incentives and privileges were
rigidly controlled. Qualifying firms typically had to be 80-100 percent export
oriented, for firms engaged in manufacturing activities.
Zones were physically located in relatively remote
areas and near transport hubs, viewed primarily as “growth poles” for regional
development. Zones were exclusively developed and managed by government bodies.
The above rigid approach has changed fundamentally
over the past two decades and it will continue to change, one of the major
changes in thinking has been to permit Zones to develop country wide and not
restrict them to growth poles or other designated areas. This may be in
response to the growing desire of private Zones developers and the increasing
number of private property development groups.