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Have export processing zones lost their relevance in Africa?

February 13, 2017

 

Export Processing Zones (‘EPZs’) - also referred to as Free-trade Zones, became popular in Africa after the 1970s. EPZs aim to create jobs, encourage exports, and increase GDP growth through:  

 

  • Various tax exemptions;

  •  Flexible regulatory requirements; and

  •  An ease of doing business.

 

The case for export processing zones

 

As mentioned above, EPZs encourage exports by creating an environment which enables local industries serve foreign markets. A successful EPZ scheme generates higher foreign exchange earnings, increases employment opportunities and facilitates technology transfer. For the majority of African countries that tend to be import oriented and with fairly high rates of unemployment, the prospect of higher exports which will eventually increase foreign exchange reserves and job creation is good news.

 

A number of African countries have chosen the EPZ route as one of the stimulants to GDP growth, but how effective have EPZs been in achieving their targets?

 

A tale of four countries

 

Kenya – modest growth

 

Annual performance reports issued by the Export Processing Zones Authority of Kenya (EPZA), reveal a steady growth of 2.3% in EPZ generated export revenue from Kshs 28,094m (US$ 334,448) in 2008 to Kshs 39,962m (US$ 475,732) in 2012.

 

Growth rates were more encouraging between 2013 and 2014 at 15% and 17.4 % from 2014 to 2015.

 

Employment of Kenyan nationals also increased from 30,187 in 2014, to 50,253 in 2015 representing an 8.7% increase. This growth in employment was confirmed in the EPZA’s newsletter as being mainly due to expansion in the apparel and agro- processing EPZ enterprises.

 

The ownership of EPZ enterprises by locals grew from 25.6% to 33.7% between 2011 and 2014, suggesting an increase in local entrepreneurship over the period.

 

At the end of 2014, the Kenyan EPZ scheme had contributed 9.56% to total national exports, 0.32% to national employment and 1.07% to GDP (based on constant prices).

 

Nigeria – Oil or nothing

 

Nigeria is known to earn the majority of its foreign exchange from oil and mineral exports. EPZ activity particularly in relation to other export areas, has been limited.

 

In the article ‘Understanding Nigeria’s Free Trade Zone scheme’, written by Nats Agbo in 2016, Agbo bemoaned the lack of literature on EPZs in Nigeria. He stated: “Stakeholders and policy makers are often left with little to no guidance regarding the scheme’s viability or otherwise”. According to the article, research conducted by Chidi and Nzerem in 2015, in their book – ‘A Review of Nigeria’s Free Trade Zone Scheme’, remains the only comprehensive source of information regarding the scheme’s contribution, since its adoption.  The authors concluded that overall, the scheme was not making significant contributions to exports or job creation with foreign exchange earnings of just US$ 8.3m in 2012, and 40,000 jobs created in the same year. Data in relation to EPZ generated export revenue was not readily available.

 

In the  research document ‘Export Processing Zones and Economic Diversification in Nigeria, 2001 – 2013’  published by the International Institute of Academic Research and Development , Harry Deinibiteim Monimah also concluded that, the EPZ scheme in Nigeria was more functional than successful, with only an average of 20% of EPZ produce being exported.

 

Ghana – A lack of data

 

Similar to Nigeria, there is little accurate data and comprehensive literature which assesses the contribution of EPZs in Ghana.

 

Data from the Ghana Free Zones Board (GFZB) as contained in a document published by the Independent Evaluation Group (IEG) of the World Bank: ‘Project Performance Assessment Report Republic of Ghana’  in 2013, revealed that about US$ 2.1bn had been exported from EPZ enterprises, based on employment of about 2,372 people in the sector. Although this information was acknowledged by the GFZB as incomplete, results of interviews conducted by the IEG indicate that employment figures were growing. The report concluded that even though net exports from EPZ enterprises were likely to be far lower than US$ 2.1bn (due to the inclusion of cocoa exports), “the evidence is at least suggestive of increased export trade and achievement of one of the project objectives”.

 

Togo – Early adopter

 

Togo was one of the first African countries to launch its EPZ scheme in 1991 with the aims of promoting domestic value- adding activities, increasing employment and foreign direct investment.

 

According to Carpophore Ntagungire, the African Development Bank’s principal economist for Togo, Togo’s EPZ contributes more than 50% of its total national exports however domestic value- adding activities have declined steadily from 51% of turnover in 2001 to 18% in 2012.

 

Similarly, projected employment figures for EPZs have fallen short of the planned 100,000 people to the current 13,000 people (as at 2014).

 

Lastly, foreign direct investment earned is eroded by the importation of intermediate goods in favour of locally made products.

 

Mixed reviews

 

The countries profiled in this article, tell a story laced with moderate successes, failures and immeasurable outcomes.

 

EPZs are clearly well intentioned and do have benefits. However, proper execution and consistent, monitoring and evaluation are the only ways to ensure that measurable goals are achieved.

 

Room for learning

 

It can be argued that a country’s location, infrastructure, market size and choice of output (value-addition), play a significant part in attaining EPZ success. However, African countries such Mauritius and Madagascar, have shown that success is possible and serve as encouragement for the rest of the continent.

 

 

 

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