Export Processing Zones (EPZs)
MODULE 2:  What are Export Processing Zones?

Which of these names are used in Southern Africa?

Do you have EPZs in your country? What are they called?

What is so special about EPZs?

In 1970 about 50 000 workers were employed in EPZs worldwide. By 1990 their number was estimated to be up to 3.5 million. Differing figures are a result of different EPZ definitions. Some consider only fenced off EPZs and others such as that of the World Export Processing Zone Association (WEPZA) include "all government authorised areas such as free ports, free trade zones, custom free zones, industrial free zones and foreign trade zones."

Located on the eastern coast of Africa along the Indian Ocean, and bordered by Ethiopia, Somalia, Sudan, Uganda and Tanzania, Kenya is particularly well located for trade with the Eastern and Southern African region, the Indian Ocean islands, the Middle East, the Indian subcontinent, the Far East, and Europe.

As a member of African, Caribbean and Pacific (ACP) Lome Convention, Kenyan goods receive preferential market access to the European Union. The Common Market of Eastern and Southern Africa (COMESA) of which Kenya is a member also affords the country's goods preferential access to the regional market of over 200 million people.

Investors will find the living and working environment in Kenya pleasant. Excellent accommodation, education, shopping, health and recreation facilities provide a high standard of living for EPZ investors and their families.

EPZ INCENTIVES

EPZ enterprises and developers enjoy a liberal operating environment with the following incentives provided for by the EPZ Act:

1. 10 year corporate tax holiday and thereafter corporate tax at 25%.
2. exemption from duty and VAT on all inputs
3. exemption from payment of withholding tax.
4. unrestricted offshore borrowing
5. freedom from exchange controls with respect to investment by foreigners, repatriation of dividends and operation of foreign currency accounts.
6. work permits for technical, managerial and training staff.
7. exemption from complying with various laws eg. Factories Act, Industrial Registration Act, Statistics Act
8. high quality infrastructure at the zone
9. customs inspection of goods at one rather than at port.

In addition zone enterprises and zone developers are assisted and facilitated by EPZ staff in every stage of their investment process, from enquiry to licensing to establishment of operations.

The key criteria on which projects are assessed are:

• job creation
• non-traditional export product development
• technology transfer and training for workers
• incremental productive investment
• backward linkages with the Kenyan economy

At present, there are no minimum levels of investment as each project is assessed on its own individual merit against the above criteria.

AREAS FOR INVESTMENT

EPZ encourages investment in all areas including the following:

• garment, leather made goods, footwear, textile yam and fabric
• garment accessories
• solar technology products (solar cookers, panels, batteries etc)
• electronic goods, telecommunication equipment
• data processing and information technology
• jewellery and watch manufacture
• cosmetics, pharmaceuticals
• building materials
• furniture
• food processing
• agricultural machinery (ploughs, tractors, pumps)
• paper products.

Existing investors are in electronics, paper products, garments, food, agro-produce, engineering, rubber products and pharmaceuticals.

What do EPZs offer to investors?

What makes EPZs different to other areas of production?

EPZ producers are given a range of incentives and economic concessions to encourage them to open factories in a country. Some of these, internationally and in Southern Africa are shown below:

How do these EM measures compare with general economic policies in Southern Africa?

---

Structural Adjustment Measures

	i.	Reduction in government spending e.g social expenditure (cost recover programmes)
	ii.	Liberalisation of foreign exchange rules and trade
	iii.	Rationalisation and privatisation of public enterprises
	iv.	Deregulation of the economy, for example: liberalisation of foreign investment regulations; deregulation of the labour market, e.. wage flexibility (no minimum wages, no restrictions on retrenchments); abolishing price controls and food subsidies.
	v.	Shift from import substitution to export production.

What similarities/differences do you see between the EPZ incentives and the structural adjustment measures shown above?

---

Since the 1980s EPZs have been promoted as a way of industrialising through export processing. EPZ countries are usually those with many people employed in agriculture, exporting low value agricultural goods, with high unemployment, local production for local markets, low levels of foreign investment and economic stagnation. EPZs are a signal that a country is replacing an inward-looking development strategy based on import substitution with an outward oriented development path. The World Bank sees EPZs as a first step towards greater economic liberalisation, to integrate protected countries into world markets. EPZs are thus one part of a broader programme of liberalising economies to global competition and free trade.

What do Southern African countries hope to get out of EPZs?

Get newspaper articles from countries in the region on introduction of EPZs.  EPZ adverts can be obtained and used here.

What do the newspaper articles indicate that countries in Southern Africa hope to get out of EPZs?

What promises have been made about the economic problems that EPZs will solve in your country?

---

The main direct economic benefits that are attributed to the operations of EM are:

• employment;
• skills transfer to local workers;
• foreign exchange earnings through sales of EPZ products abroad;
• economic diversification by stimulating the growth of a non-traditional export sector;
• stimulation of domestic companies through backward linkages' from the EPZ enterprises
• and technology transfer from the EPZ investors to local companies.

One of the main economic benefits attributed to the operations of EPZs is supposed to be skills transfer.

Back to Top

Navigation Bar:

 

---

For further information, please contact the Bureau for Workers' Activities
at Tel: +41.22.799.7021 Fax: +41.22.799.6570 or E-mail: actrav@ilo.org

ACTRAV: [ Workers' Group | Decent Work | Labour Standards | Employment |
| Social Protection | Social Dialogue ]

International Labour Organization (ILO): Contact us | Site map |

Copyright and Permissions 1996-2008 International Labour Organization (ILO) - Disclaimer