West African Challenges / N°04, November 2011 © Sahel and West Africa Club Secretariat (SWAC/OECD) the Example of West Africa

Home , Banjul, Foreign trade of Benin, Free Zone (region), Monrovia, Togo, Wanadoo

n°04 SAHEL AND WEST AFRICA Club November 2011 Secretariat

West Secrétariat du DU SAHEL ET DE African Club L'AFRIQUE DE L'OU EST Challenges

Are economic by François BOST, Geographer, Senior Lecturer at free zones good Université de Paris-Ouest-Nanterre- La Défense Laboratoire de Géographie for development ? comparée des Suds et des Nords (GECKO, EA 375)

A worldwide 1phenomenon

The free zones 2 of West Africa

Many advantages 3 for businesses

An unfortunate lack of 4 sector specialisation

Four case studies: 5 Ghana, Nigeria, Senegal, Togo

(Original version : French) Paper published by the Sahel and West Africa Club Secretariat (SWAC/OECD)

The opinions and interpretations expressed in this paper do not necessarily reflect the views of the OECD or the SWAC Secretariat.

2 West African Challenges / N°04, November 2011 © Sahel and West Africa Club Secretariat (SWAC/OECD) The example of West Africa

Economic free zones – enclaves that combine tax benefits with customs advantages – have multiplied around the world since the 1980s, mainly in response to the wave of off-shoring of industrial production. There are 29 free zones today in 11 West African countries, which can be broken down into free trade zones (6) and export processing zones (23) and to which may be added some 450 “free points”.

Overall, the impact of these zones in West Africa, particu- World Atlas of larly on local economic development, has been ambivalent at Free Zones best. Geared for the most part towards export manufacturing, free zones have as yet done little to diversify economies or to Published in September 2010, reinforce the entrepreneurial fabric of host countries. François the Atlas was produced by a Bost, Director of the Atlas mondial des zones franches (“World team of 16 researchers and two Atlas of Free Zones”), observed that “The approach taken with cartographers and presents industrial free zones has for the most part been multi-activity a comprehensive picture oriented and has taken on an opportunistic, ‘take-all’ logic of free zones throughout characteristic of underdeveloped countries. […] In contrast to the world. It identifies and the many free zones established in Asian or Latin American classifies 1 735 such zones countries, there is still virtually no sectoral specialisation such in 133 countries, mainly in as would allow these zones to achieve economies of scale.” the developing world and Moreover, West African countries that have adopted free zone in Eastern Europe. At a regimes have not succeeded in attracting more Foreign Direct time when the relocation Investment (FDI) than countries that do not have such regimes. of industrial and service As for their impact on employment, while free zones account for activities is accelerating as much as half of secondary-sector employment and the power of emerging in some countries (for example Togo), this is in countries is rising, this Atlas fact a reflection of their lower levels of industri- offers a unique vantage alisation. The workforce is generally unskilled, point for understanding and with few opportunities for training, and working appreciating the globalised conditions are often insecure. economy and its wellsprings.

“Rather than being the driving force for devel- Bost, François (dir.) opment in West Africa, free zones would therefore Atlas mondial des zones seem to be simply one among several components franches, La Documentation of a more general development strategy that has Française, 2010, 313 pages yet to be precisely defined”, concludes François Collection: Dynamiques Bost. How, then, can these zones be transformed du territoire into effective drivers for development? (ISBN: 978-2-11-008258-9)

Improving the image and attractiveness of West African countries for investors will require targeted strategies, focusing, for example, on the specialisation of a specific sector, which can be pitched to investors through promotion and marketing activities. At the same time, steps must be taken to improve the business climate by addressing the factors that hold back investment, such as excessive red tape, weak infrastructure, political insecurity and instability, a rudimentary financial system, and an under qualified workforce. A smoother- functioning and better-integrated regional market could attract more investors, especially from emerging countries, and access to a market of more than 320 million potential consumers should be an alluring prospect. Better regional transport infrastructure and fewer constraints on free circu- lation would allow the free zones to play a useful interface role between national, regional and global economies. This note summarises the main findings on West Africa from the World Atlas of Free Zones.

he term “free zone” can be accounted for around 47 % of the zone regimes (33 out of 48), which can T defined as a perimeter of varying country’s total exports. be explained by the high number of size, in which authorised businesses sovereign states in the region. In 2009, are exempt from the normal regime Free zones have expanded apace with it was host to 101 different kinds of applicable in the host country, in the trend of trade liberalisation and free zones; Kenya held the lead with particular with respect to the customs with the openness of virtually all 33 free zones, some being very small and taxation fields (Bost, 2010). In countries to the market economy. They and confined to only a few firms and return for this concession, govern- have also contributed to ments expect these businesses to the surge in international boost national exports, to create jobs, trade and FDI, particu- Free zones have began to multiply to the and to help diversify the economy by larly in the developing point where it is now no longer a question of bringing in new branches of activities. world and in Eastern identifying the countries that have them, but Europe. On this score, rather of seeking out those that have still not Having made their first appearance free zones are readily passed legislation in this area. after World War II, free zones then claimed as important – began to multiply in the 1980s, to indeed decisive – tools the point where it is now no longer a and mechanisms for gaining entry to only two of which were government- question of identifying the countries the spiral of development because of owned. Yet they have not proven that have them, but rather of seeking the spill-over effect they may have, at the trump card for industrialisation out those that have still not passed different scales, on local and national in sub-Saharan Africa, as they still legislation in this area. economies. But the extent of these only weakly attract local and foreign effects varies greatly, depending on investors. The World Atlas of Free Zones, the country and the geographic area published in September 2010, identified in question. 1 735 free zones in 133 countries in 2009. All the emerging countries are Sub-Saharan Africa has by no means included in that list. China alone has been kept to the sidelines in this global 213 free zones, under nine different movement; indeed, it represents the legal regimes, and in 2008 they largest number of countries with free

Box 1

The different types of free zones

Free Trade Zones (FTZ) are a first and (after some period of time in storage) or In addition to the physically delimited export very widespread type of free zone. Hubs of release for sale onthe domestic market (after processing zones, some countries have devel- international trade by the very nature of their payment of customs duties). oped a second possible mode of operation for activities (transshipment, goods distribution, businesses: the so-called Free Points. These re-export, international business, etc.), these Export Processing Zones (EPZ), also known do not refer to any specific physical space, zones are typically located at seaports (“free as industrial and service free zones, constitute but rather to a legal status that is accorded ports”) and airports; – along major com- the second type of free zone. They are special- to businesses using the same criteria as for munication routes (maritime, rail and road); ised in manufacturing production (textiles and the free zones (and, therefore, conveying the along development corridors and/or in border clothing, footwear, sporting goods, consumer same advantages). These industrial and service regions. Import-export companies and freight electronics, industrial components, etc.) and, businesses are free to locate wherever they forwarders are able to unload imported mer- increasingly, the provision of services that can wish within the host country, but they generally chandise of all kinds in those zones without be delivered remotely through digital networks position themselves near sources of raw mate- customs duties and taxes and with minimal (capture and processing of digital data, call rials, labour supply or specific infrastructure, or formalities, pending re-export to a third country centres, etc.). in border regions.

Translated from the original French version. Source : F. Bost (2010). Atlas mondial des zones franches.

4 West African Challenges / N°04, November 2011 © Sahel and West Africa Club Secretariat (SWAC/OECD) Map 1 – Free port of Lomé

Cotton Second- stocking hand Cars area (ex-Chad) Niger Second- hand Cars CAR Mali Platform Reservations Platform Mali Banamba B. Faso Fishing PAL Terminal Port B. Faso for containers PAL PAL Port PAL -- 6 m Market PAL Platform Workshops Management Pier 2

Platform - 9,5 m Pier 1 - 12 m Parking - 7 m Area - 8 m - 11 m Port Authority PAL of Lomé (PAL) - 11 m National Navy Camp dock

Free Zone Boundaries - 10 m Warehouses Areas used for handling containers - 14 m Extension of terminal Sand Banks for containers Main Roads N Secondary Roads 200 m Railroads main dock Port Basins Atlantic Ocean - 10 m Depth of Basins Cartographie : J.Robert, F.Bost, Université Paris Ouest Nanterre 2011 Cartographie : J.Robert, F.Bost, Source : Port de Lomé Map 1 - Free Port of Lomé

The free port of Lomé

The centrepiece of Togo’s deepwater jetties (one for bulk cargo, the other provided since 1993 by a road convoy port (-14m) at Lomé, this free port for containers), it has a 100 000 m² service under escort by the Togolese covers 81 of the port zone’s 191 ha. container terminal equipped with an security forces from the free port to Well protected behind two harbour automated transshipment platform the border, operating at the rate of four walls, it functions not only as a distri- that has a capacity of 200 TEU per trips per week. Named “Solidarity on bution port for regional maritime hour, as well as transit warehouses the Sea”, this service is greatly appre- trade, but also serves as a veritable of 7 500 m² each. Several of these are ciated by its users, as it eliminates lifeline for the landlocked countries reserved exclusively for storing goods racketeering along the route through of the Sahel (Burkina Faso, Mali and arriving from or en route to interior Togo while also ensuring the physical Niger) for which it is one of the main countries. Safe transit for merchandise safety of the drivers. outlets to the sea. In addition to its two to these landlocked countries has been

hile Liberia was already which opened an industrial free zone As a result, countries turned to a W pioneering the way for free in Monrovia in 1976. development model more squarely zones in Africa in 1948 with the focused on manufacturing exports opening of a free trade zone in the port The lack of interest shown by (and therefore more favourable to of Monrovia, it was not until 1974, when West African countries at the time free zones), without necessarily Senegal adopted a free zone regime concerning the politics of free zones abandoning the previous strategies. for the manufacturing industry, that merely reflected the dominant devel- the movement was really launched opment strategies put in place in the The spectacular success of exports in West Africa. Well positioned on wake of independence in Sub-Saharan from the Mauritius free zone during the Atlantic coast and bolstered by Africa. Those strategies favoured the 1980s (with 600 licensed firms and its close and long-standing relations raw material exports with little local 90 000 jobs in place by 1990) had a with France, Senegal was able to processing along with import substi- deep impact on the region, sparking a emulate the model of Mauritius (1970) tution to supply the home market with veritable frenzy of legislation-creation and thereby get a step ahead of its domestically manufactured goods. during the 1990s and 2000s. Countries neighbours in welcoming offshoring across the continent, and particularly industries and in taking advantage of This rent-seeking strategy was prone in West Africa, began to adopt free its geographic proximity to Western to severe limitations: the collapse of zone regimes: Togo and Cape Verde in Europe. The euphoria surrounding the raw material prices on world markets 1989, Mali and Nigeria in 1991, Ghana launch of the free zone at Mbao,15 km during the 1980s, the shallowness of in 1995, The Gambia and Mauritania in from Dakar, quickly dissipated, local consumer markets, the drying 2002, Côte d’Ivoire in 2004, and Benin however, leaving scant incentive for up of foreign investment, rising in 2005. These moves had the backing imitation, except in the case of Liberia, unemployment and poverty levels. of both multilateral partners such as

Table 1 – Free zones in West Africa and their specific features

Legislation Country Free Trade Zones Export Processing Zones Free Points adopted in: Benin 2005 – 1 Industrial Free Zone – Burkina Faso – – – – Cape Verde 1989 – 1 Industrial Free Zone – Chad – – – – Côte d’Ivoire 2004 – 1 Technology Free Zone (village of – information, communication and biotechnology The Gambia 2002 1 Free Port 1 Industrial Free Zone – Ghana 1995 2 Free Ports (Tema and Takoradi) ; 1 4 Export Processing Zones : Tema, Around 150 Single Factory Airport Free Zone (Kotoka) Takoradi (2) and Kumasi Entreprises Guinea – – – – Guinea-Bissau – – – – Liberia 1948 1 Free Port (Monrovia) 1 Industrial Free Zone – Mali 1991 – – A few Free Points only Mauritania 2002 – – A few Free Points only Niger – – – – Nigeria 1991 – 9 operating Free Trade Zones; A few Processing Factories only 10 under construction, 3 planned Senegal 1974 1 Special Economic Zone (SEZ) 1 Industrial Free Zone (Dakar) around 10 Free Points, under construction around 180 Free Exporting Firms

Sierra Leone – – – – Togo 1989 1 Free Port (Lomé) 4 Export Processing Zones (EPZ) : Around 40 Free Points 3 in Lomé and 1 in Kara Source : F. Bost (2010). Atlas mondial des zones franches.

6 West African Challenges / N°04, November 2011 © Sahel and West Africa Club Secretariat (SWAC/OECD) Map 2 – Free zones in Sub-Saharan Africa

WESTERN SAHARA

Tropic of Cancer

MAURITANIA THE GAMBIA NIGER MALI SENEGAL CHAD DJIBOUTI BURKINA FASO GUINEA- SUDAN GUINEA BENIN BISSAU NIGERIA GHANA SIERRA CÔTE ETHIOPIA LEONE D’IVOIRE CENTRAL AFRICAN REPUBLIC LIBERIA TOGO CAMEROUN SOMALIA EQUATORIAL UGANDA KENYA Equator GUINEA CONGO GABON RWANDA BURUNDI Geographically designated free zones (FZ) (7 private FZ) DEMOCRATIC (19 private FZ) Free zones REPUBLIC OF CONGO TANZANIA Planned free zones Free ports Free zones specialised in ICT MALAWI Private free zones ANGOLA

Other situation related to free zones ZAMBIA Text of law under examination Text of law only promulgated MAURITIUS Area only eligible for free points ZIMBABWE MADAGASCAR NAMIBIA BOTSWANA MOZAMBIQUE No legislation on free zones Tropic of Capricorn Development Corridors in Southern Africa Corridors of Walvis Bay Corridors of Mozambique LESOTHO SWAZILAND Corridors of South Africa SOUTH N AFRICA 1 000 km

Cartographie : J.Robert, F.Bost, Université Paris Ouest Nanterre 2011 Map 3 - Free zones in Sub-Saharan Africa

the United Nations Industrial Devel- however, have any legislation in this opment Organisation (UNIDO) and area and do not seem interested in it the World Bank, as well as bilateral as a development tool. No doubt this partners (for example, the Overseas has to do in part with their remoteness Private Investment Corporation in from the sea (in fact there are very the United States and the Jebel Ali few landlocked countries around the Free Zone Authority in Dubai). The world that have adopted a free zone World Trade Organisation (WTO) regime), as well as with the weakness also learned to accept these free of their economic fabric compared to zones, despite their infringement on middle-income countries the principle of free competition, as it such as Ghana or Nigeria, became clear that they constituted one and perhaps with their In 2011, there were 11 West African countries of the rare means available for many of limited attractiveness for with a free zone regime. these countries to industrialise and to investors (although some take part in international trade. coastal countries are not necessarily much more attractive). In 2011, there are 11 West African countries with a free zone regime. Having jumped into the “race” for free Burkina Faso, Chad, Guinea, Guinea- zones later than other regions of the Bissau, Niger and Sierra Leone do not, world, West Africa has now made up p. 8

© Sahel and West Africa Club Secretariat (SWAC/OECD) West African Challenges / N°04, November 2011 7 most of its lost ground and has applied designed and dedicated primarily for Senegal and Togo) have chosen to go the concept in all its different forms. export manufacturing. Two countries with both physically delimited free In addition to the free ports (Banjul (Mali and Mauritania), however, have zones and free points, in order not to in The Gambia, Tema and Takoradi pursued the free zone concept only miss any opportunity for the instal- in Ghana, Monrovia in Liberia, in the form of free points, which are lation of new firms. These are, in fact, Lomé in Togo), which, while few in easier to implement as they do not the countries that have derived the number, are certainly essential for require the layout and equipment of a greatest benefits from free zones in the landlocked countries of the Sahel, costly industrial zone to attract firms. West Africa. the most frequent type of free zone is Finally, four countries (Ghana, Nigeria,

Many advantages 3 for firms

he laws governing free zones in processing zones. Goods in transit, bilateral or multilateral agreements. T West Africa are fairly similar from as well as those inputs needed for one country to the next, reflecting production (raw materials, interme- Customs duties (as well as local taxes, the influence of the international diate goods and capital goods) are such as VAT, and other import levies consulting firms that have drafted exempt from host country customs provided for under ordinary law) most of them. To be eligible for the duties when they enter the free zone. are payable when the products and advantages offered, industrial and Similarly, goods stored or subjected goods from the free zones are sold in service firms must meet a number of to minor transformation (known the national territory (as authorised conditions, and in particular they must as “inward processing”), as well by law and after validation by the export virtually all of their output. as products manufactured on site, oversight agencies). The objective They must also work in specific sectors may leave the zone free of customs is to avoid the distortion of compe- of activity intended to diversify the duties. Customs duties are payable tition with similar goods imported country’s economic structure. by importers, however, as soon as the under the ordinary regime. In some goods cross the border of the desti- West African countries there is a Customs advantages are common nation country, unless that country has strong temptation for unscrupulous to both free-trade zones and export eliminated them under preferential firms to place imported goods on

Table 2 – Fiscal and customs arrangements in free zones and ordinary regimes: the case of Togo

Free zones Types of Taxes Ordinary tax regime First 10 years After 10 years Industrial companies: 37% Taxes on companies 0 % 15 % Other companies: 40% Applied oordinary Minimum flat-rate tax varies depending on profits 0 % regime Taxes on dividends 15 or 25% 0 % 15 ou 25 % Professional tax 1% of profits, 2% of rent for buildings 0 % Income tax 7 % 2 % Tax on insurance agreements 25% of value of premiums 0 % Value-added Tax (VAT) 18 % 0 % between 0 and 20% depending Customs fees 0 % on the type of good 4% of the value of tariffs, Customs stamp 0 % statistical taxes and tolls Statistical tax on equipment 3% of the value of cost-insurance-freight 0 % Sources: Law n89-14 of 18 September 1989, Agbodji et allii p1, and various

8 West African Challenges / N°04, November 2011 © Sahel and West Africa Club Secretariat (SWAC/OECD) Box 2

Social issues related to free zones

Social issues remain the Achilles’ heel for But are they really so different from conditions ILO Conventions 87 and 98), and this has led many firms operating in West African free in industries outside free zones? The turnover to the creation of three separate unions: Union zones. All-out or specific attacks on workers’ rate among unskilled workers in the firms con- générale des travailleurs de la zone franche rights are a matter of course in some coun- cerned is indeed high, despite their being paid (Usyntrazofe); Syndicat national des travail- tries, particularly when it comes to collective comparatively more than their counterparts leurs de la zone franche du Togo (Syntrazoft); bargaining and freedom of association, as under the ordinary regime precisely to limit this and Syndicat Libre des Travailleurs de la Zone regularly revealed in the International Labour phenomenon. Franche (Sylitrazof). This development is likely Organization (ILO) surveys. Unpaid overtime, to improve enforcement of the labour code non-remunerated work at night, and a lack Things are beginning to change, however, and (particularly in the hiring and firing of tempo- of social security and paid holidays are the progress has been observed in some countries. rary workers, whose status is very insecure), abuses most frequently cited by polls and In Togo, for example, freedom of association with which many firms had been playing fast union sources. Harsh working conditions are has been recognised in its free zones since and loose, as well as application of wage still the common lot of most free-zone workers. 2009 (following that country’s ratification of increases negotiated with employers.

domestic markets without paying comparing tax provisions under the customs duties. While these practices ordinary regime and the free zone remain the exception, they threaten to regime in Togo, the table 2 provides discredit the very purpose of the free an excellent example. zones if they are not met with strong opposition. There are other advantages offered to authorised firms in free zones that, When it comes to tax advantages, according to investor surveys, are just authorised firms in the export as important in convincing these firms processing zones are exempt from to settle in a country. These advan- corporation tax (also known as tages serve to create a more favourable corporate income or profit tax) for a and smoother-functioning length of time that varies by country business climate (known (10 years in the case of Ghana and as the “oasis effect” or West African countries are likely to maintain Togo, for example). After that time the “enclave effect”), an attractive tax regime in their free zones limit, firms fall back under the especially in countries for a long time yet. ordinary regime and become taxable, where activities under the either at the level stipulated by the ordinary regime suffer ordinary legislation or at a reduced and from burdensome red tape. They also still-attractive level for a transitional vary sharply from country to country, period, so as not to incite a move to including: simplification of adminis- another country that offers investment trative procedures via a “one-stop incentives. In any case, West African window” where all formalities can be countries would do well to maintain an handled at once; proximity to major attractive tax regime in their free zones infrastructure facilities (interna- for a long time yet. Given their low level tional airport, deep water port, etc.); of development, they are not affected reduced factor costs (water, electricity, by WTO demands for revisions to their telecommunications, etc.); relaxation taxation systems (which are aimed only of foreign exchange regulations, at emerging countries). often amounting to total freedom for movement of funds; free repatriation of In addition to their exemption from earnings in foreign currency; prefer- corporation tax, companies also ential interest rates offered by local generally enjoy other types of tax banks; preferential freight rates; etc. exemptions, which vary greatly among countries: exemption from taxes on dividends paid to shareholders, tax exemptions for expatriates, etc. By

n West Africa, industrial free zones and subcomponents), in particular, education). Other applications of I are usually multi-activity oriented, is notable by its absence, although it new information and communication governed by a highly opportunistic would allow the countries of the region technologies could also prove inter- “take all” approach typical of poorer to join the “international division of esting over time: digital archiving, countries. In contrast to many of production processes”. This finding digital data capture, offshore software the free zones installed in Asian or testifies to their weak integration into development, etc. Latin American emerging countries, the globalisation of trade, sectoral specialisation around a few to the considerable lag that targeted activities is virtually nonex- separates them from, for Free zone activities fall for the most part istent, making it impossible for them example, the Asian free within low value-added sectors with a high to achieve economies of scale (for zones, and to the efforts coefficient of unskilled labour. example, by pooling certain services they will need to make or by placing group orders with local in terms of changing the suppliers) as a way of reducing costs. business climate, mastering technol- It is, however, not impossible that Moreover, this sectoral dispersal is ogies, and training their workforce. some West African free zones may harmful for purposes of complemen- For the time being, only the services over the longer term take the form tarity, capitalisation and transmission sector has managed to produce some of technology parks, as has been of experience among firms. This interesting results in the area of observed in East Asia since the early situation is reflected spatially within offshoring, thanks to the laying of the 1980s. Côte d’Ivoire may prove to the West African free zones, where SAT 3/WASC/SAFE submarine cable offer a foretelling example. Although firms operating side-by-side pay no that links Europe and nine countries that country did not yet have a heed to each other, especially when in Africa and Asia (with a capacity of general free zone regime, it passed they are of different nationalities. 60 Gb per second, or 720 000 simul- a law in 2004 creating a specific free taneous telephone communications). zone devoted to technological activ- Another weak point lies in the fact that Senegal is one of its beneficiaries, and ities. This free zone is located east of free zone activities fall for the most the several telemarketing call centres Abidjan at Grand-Bassam and has part within low value-added sectors that have been opened in the past been named the “Village des Technol- with a high coefficient of unskilled decade enjoyed a degree of success ogies de l’Information, de la Communi- labour. They differ little in this respect, (the employees are French-speaking cation et des Biotechnologies” (VITIB). then, from activities outside the free and have received a certain level of Interestingly, the term “free zone” has zone, except for their orientation towards exports. Nor is there any apparent strategy to boost the range of products toward middle and high-end Table 3 – Foreign Direct Investment in West Africa (USD million) technologies. Country 2005 2006 2007 2008 2009 Consumer markets are targeted for Benin 53.43 54.93 261.34 173.83 92.55 export, which are for the most part Burkina Faso 34.15 33.59 343.54 137.09 171.41 restricted to the West African region. Cape Verde 81.55 130.65 190.02 211.67 119.59 Few firms gear their products to the Chad (99.34) (279.22) (69.48) 233.58 461.81 more demanding markets of Europe Côte d’Ivoire 311.92 318.86 426.78 482.13 408.95 or North America, where health, The Gambia 44.69 71.22 76.46 70.10 47.35 technical and quality standards are Ghana 144.97 636.01 855.38 1 220.41 1 684.74 higher. Guinea 105.00 125.00 385.90 381.88 140.85 Guinea-Bissau 8.00 17.33 18.58 5.97 13.96 Lastly, it is rare for foreign firms to set Liberia 82.81 107.85 131.60 200.00 378.00 up in these West African free zones in Mali 224.74 82.15 65.48 179.68 109.10 the course of offshoring a manufac- Mauritania 814.10 105.50 138.30 338.40 (38.30) turing activity from an industrialised Niger 30.29 50.54 129.04 565.87 738.90 country, as they have done so often Nigeria 4 978.26 13 956.49 6 086.73 6 814.40 5 850.73 in North Africa (Tunisia, Morocco Senegal 52.31 210.43 272.72 272.44 207.55 or Egypt), in East Asia or in Eastern Sierra Leone 83.18 58.77 96.60 53.00 33.40 Europe. The international subcon- Togo 76.99 77.34 49.16 23.88 50.13 tracting sector (final assembly, subas- sembly, manufacture of components Source : UNCTAD online database. http://unctadstat.unctad.org

10 West African Challenges / N°04, November 2011 © Sahel and West Africa Club Secretariat (SWAC/OECD) been deliberately excluded, no doubt At the present time, the only tangible of 125 companies in 2009. A second for marketing purposes. The initial example of a sector-specialised phase would bring in 730 additional plan was to assemble IT products at free zone in the region is the Onne hectares for the establishment of light VITIB, but the civil war brought devel- Oil & Gas Free Zone that has been manufacturing associated with the oil opment to a halt as potential investors operating in Nigeria since 1997 on industry, while a planned third phase were frightened off by the climate of the Bonny River in the State of Cross would incorporate 800 ha on Ikpokiri uncertainty and the complete lack of River, 21 km from Port Harcourt (the Island for heavy industry specialised transparency. With the overthrow of country’s petroleum centre) and 315 in gas and oil processing. Laurent Gbagbo on 12 April 2011 and km from Lagos. Covering 220 ha, this the assumption of power by President free zone is the only one in the world Alassane Ouattara, together with dedicated solely to the oil and gas the lifting of international economic industry, including the construction sanctions, the pace of activity at the of pipelines, drilling and explo- site is likely to recover in the long run. ration equipment. It hosted a total

Four case studies: 5 Ghana, Nigeria, Senegal and Togo

he comparative analysis of the poor state of such local factors as Magazine, published by the Financial T economic benefits contained in transport and telecommunications Times devoted to “Global Free Zones the World Atlas of Free Zones shows infrastructure, public services, and of the Future”, this small country that these benefits are most significant workforce skills. was placed among the world’s most for emerging Asian countries, Eastern Europe and to a lesser extent for Latin Accordingly, rather than America, where free zones have played being the driving force The comparative analysis of economic the role of a development driver, for development in West benefits shows that these benefits are most particularly in terms of employment Africa, free zones would significant for emerging Asian countries, and exports. Conversely, the least seem to be simply one Eastern Europe and to a lesser extent for conclusive results worldwide are among several compo- Latin America. seen in the least-developed countries nents of a more general (LDCs, - with the exception of development strategy that Madagascar and Bangladesh), - thus has yet to be precisely defined. promising free zones, ranking 18th in most West African countries. The out of the 700 economic zones investi- lack of medium and long-term predict- Yet the results recorded by West gated. There are now more industrial ability and the complicated political African free zones are not insignif- jobs within the free zone (over 8 000 in and geopolitical situations of these icant. Togo, for example, a country 2010) than outside it. countries and their region do little that for many years had not received to favour the success of free zones, any assistance from the international which suffer as well from their host community, has managed to expand country’s relatively non-industrial its free zone regime quite success- image, their geographical remoteness fully. In the June-July 2010 issue of from the main consumer markets, and the Foreign Direct Investment (fDi)

see map 3, page 17

lthough it was later than other for 10 years (with an 8% rate there- last year for which official employment A West African countries in after). The legislation, however, makes data was reported, they employed 6 adopting free-zone legislation (Free no provision for preferential rates for 227 workers (down from 9 857 in 2004), Zone Act 504/31 August 1995), Ghana water, electricity, telecommunications and their exports amounted to USD has amply made up for its late start and other services. 457 million. Most of these exports since. The focus was initially on the country’s two main ports, which Although the country enjoys Although the country enjoys a solid were converted into free ports - Tema a solid reputation in West reputation in West Africa, the export (located 28.5 km to the east of Accra) Africa and among interna- processing zones have achieved modest and Takoradi (228 km west of the tional donors as a result of success thus far. capital), and to which may be added the its renewed political stability free trade zone at the Kotoka airport. (having experienced its These ports not only succeeded in first regular political succession in and jobs, however, are accounted capturing a portion of the maritime 2000) and its prudent and effective for by a few large firms, mainly in traffic that abandoned Abidjan in the management, the EPZ have still the food processing business (tuna wake of the civil war that broke out in achieved only modest success thus far. and fruit packing, cocoa liqueur and Côte d’Ivoire in 2002, but they have Around 130 enterprises were regis- powder, etc.) and manufacturing (foil also established themselves as outlets tered in the EPZ in 2010. In 2005, the wrapping, furniture, drugs, etc.). for raw material exports from the landlocked countries of Burkina Faso, Mali and Niger. They are, therefore, in Ghana direct competition with the free port of Lomé in Togo. Population 24,3 million Land area 239 533 km² As of 2011, the country has had four World Bank lower middle-income Export Processing Zones (EPZ) in income category (2011) operation since 1999 that are run by GDP (2010, PPP) USD 37 135 million private companies under the super- GDP per capita (PPP) vision of the Ghana Free Zone Board USD 1 526 (GFZB). One of them is located in Annual growth (2009) 4,7 % Tema (480 ha) and two near Takoradi Average growth 5,9 % (in Segondi and Shama), while the (2002 – 2010) fourth has been established in Ashanti FDI inflows (2009) USD 1 685 million country near Kumasi and close to ODA received USD 1 583 million the Kwame Nkrumah University of (all donors, 2009) = 4,26 % of GDP Science and Technology. The 1995 law = USD 64,89 per capita also makes provision for the creation Remittances (2009) USD 114 millions of free points (Single Factory Enter- = 0,7 % of GDP prises), which from the outset evoked = USD 4,7 per capita considerable interest (there are now about 150 such enterprises) as the EPZ World Bank Doing 63 out of 183 countries were not yet up and running. Business Index (2011) Corruption Perceptions 62 out of 178 countries The advantages granted by the Index (2010) GFZB to authorised enterprises are Ibrahim African 7 out of 53 countries fairly conventional and include full Governance Index (2011) exemption from customs duties on Human Development 135 out ot 187 countries imports and exports, exemption from Index (2011) the VAT, and a corporate tax holiday

12 West African Challenges / N°04, November 2011 © Sahel and West Africa Club Secretariat (SWAC/OECD) Nigeria

see map 4, page 17

igeria’s agricultural and export programmes. Thus, the Maigatari alliance). In addition, Nigerian law has Neconomy was profoundly trans- FTZ in the northern state of Jigawa authorised the establishment of free formed in the late 1950s, following is already operational. the discovery of immense petroleum Other free zones are reserves (which by 2010 had made it under construction; these Some Federal States of the federation have the world’s 13th oil producer). Since include the Olokola FTZ, a developed their own free zones. then, Nigeria has had to struggle with joint venture between the a very unbalanced economic structure states of Ondo and Ogun that is completely dominated by the in the southwest; the Livingspring points (Export Processing Factories) hydrocarbons sector, which accounts FTZ in Osongbo; and the Lekki FTZ throughout the national territory since for 95% of its exports. By contrast, its (16 500 ha). 65 km from Lagos, the 1996, but this provision has to date manufacturing industry is focused Lekki FTZ is an ambitious under- met with little success. on import substitution activities, taking that involves the federal produces only 3% of GDP, and government, the state of Lagos and exports very little of its output. FDI Chinese partners and it is ultimately steers clear of the productive sector, expected to create 300 000 jobs (see mainly because of institutionalised West African Challenges no. 5: China corruption, chronic insecurity, and and Nigeria, a powerful South-South dilapidated infrastructure. It was precisely to diversify the country’s export activity that the 1991 law insti- Nigeria tuting free zones was promulgated. Nine such zones are operational in Population 158,3million 2011, including the Onne Oil & Gas Land area 924 768 km² Free Zone described above; 10 free World Bank lower middle-income zones are under construction; and income category (2011) three are in the planning stage. GDP (2010, PPP) USD 384 084 million GDP per capita (PPP) The federal government has insti- USD 2 427 tuted three publicly owned free Annual growth (2009) 7 % trade zones. The first was established Average growth 9,1 % in 1992 in the port of Calabar in the (2002 – 2010) eastern section of the country (State FDI inflows (2009) USD 5 851 million of Cross River) and is to date one of ODA received USD 1 659 million the country’s largest. It covers 152 (all donors, 2009) = 0,43 % of GDP ha and appears to be well equipped = USD 10,47 per capita in terms of infrastructure, including Remittances (2009) USD 9 585 million premises available for lease, yet it has = 5,6 % of GDP had difficulty in attracting occupants. = USD 60,5 per capita The 22 firms registered in 2011 are engaged in textiles, wood working, World Bank Doing 133 out of 183 countries food processing (cocoa, palm oil, etc.), Business Index (2011) medical materials, and plastics. The Corruption Perceptions 134 out of 178 countries Kano Free Trade Zone was recently Index (2010) (2010) opened in the north of the country. Ibrahim African 41 out of 52 countries Governance Index (2011) Some states of the federation have Human Development 156 out of 187 countries also taken advantage of the free Index (2011) zone legislation to develop their own

see map 5, page 17

enegal was one of the first That provision benefited a dozen or Free Zone Authority of Dubai did Ssub-Saharan African countries so fishing and canning firms that the engineering, was to represent an to adopt a free zone regime (law had previously been ineligible for the investment of USD 800 million. As 74-06 of 22 April 1974), but it missed free zone because of their portside both a trade and an industrial free out on the wave of industrial reloca- location, as well as a few other indus- zone, this ZES was to employ 40 000 tions from Western Europe in the tries (textiles, phosphates, plywood) people as of its fifth year of operation 1970s and 1980s. Its only free zone, that employed up to 3 813 permanent (with 100 000 indirect jobs) and was established on 650 ha in Mbao (15 workers in 1998 (around 1 km from Dakar), must be regarded 400 today, plus 2 500 day as an utter failure, especially in light labourers). But instead of The Togolese authorities adopted the of initial ambitions and prior invest- attracting new entrants, free zone concept in all its possible ments and promotional efforts. It has these free points have forms in order to maximise the country’s thus far succeeded in attracting only essentially benefited attractiveness. about 15 firms (and just one of these, already established firms in the footwear industry, represented that sought to avoid a relocation) that employ at most 900 taxation by merely changing their projected to generate100 000 direct permanent workers. Moreover, the status. jobs in 1 000 firms after 20 years. activities in the zone represented very The project was, however, consid- little value added: footwear, synthetic Given these disappointing results, erably delayed by the global crisis hair, sugar packaging, leather, dry the Senegalese authorities looked for of 2008-2009, and the international batteries, bicycle tires, etc. As a case a convenient way out when the ZFID call for tenders (for connectivity and study, it highlights the difficulty of regime came up for review. Since cleanup of lands located next to the taking a development tool that has 1995, no new free point has been new international airport near Diass, proved its worth in one context and authorised, and since 1996 no firm has 45 km from Dakar) did not go out until transposing it to an entirely different been able to set up in the ZFID. The June 2011. Chinese investors have socioeconomic setting. 14 firms already established at Mbao been contacted for the commercial have, however, had their privileges portion. Overblown in its concept and The Industrial Free Zone of Dakar extended to 2016. Since 1996 (decree still vague in its objectives, this project (ZFID) suffered from over-adminis- 96-869), export firms that export at already betrays many of the features tration, excessive red tape (customs least 80% of their output can benefit of a “white elephant”. formalities, in particular), an overly from the status of “Free Export Enter- cautious approach on the part of prise” (EFE), which entitles them to a the authorities with respect to their lower corporate tax rate (15% versus special status, inordinate delays in 25% under the ordinary regime) for 25 issuing licenses, rigid labour legis- years, renewable, as well as exemption lation, as well as other problems. In from customs import and export the end, the facility’s bad reputation duties. Some 180 firms were in this reflected the fact that it was simply category in 2008 (including about 30 uncompetitive: its labour costs were call centres), employing around 8,000 relatively high in comparison to other people. destinations, the port was inefficient, factor costs (electricity, water, trans- With support from the United portation etc.) were high, and its work Arab Emirates, Senegal still enter- force was not considered to have much tains ambitions of creating a major industrial aptitude. free zone of international scale. In 2007, a law was adopted to create In 1986, the government responded a 10 000 ha Special Economic Zone by establishing free points with the (Zone économique spéciale, ZES). same tax and customs advantages. The project, for which the Jebel Ali

14 West African Challenges / N°04, November 2011 © Sahel and West Africa Club Secretariat (SWAC/OECD) Togo

see map 3, page 17

ince the promulgation of Law 89-14 dealt a severe – although not fatal industrial zone and one of them, Sof 18 September 1989, Togo’s free – blow to its start-up. Despite this covering 107 ha, at the interna- zone regime has inspired great hopes unfavourable environment, a number tional airport) and one (35 ha) in the (the Head of State, General Gnass- of local and foreign firms have estab- northern city of Kara on the major ingbé Eyadema, went so far as to lished activities in the zone. communication route linking Lomé announce publicly in 1990 an eventual to Burkina Faso. The port ZFTEs target of 100,000 jobs), nourished by The Togolese authorities adopted the cover, respectively, 35 ha (four parking the confident support of several multi- free zone concept in all its possible areas totalling 128 287 m² for storing lateral (UNIDO and the World Bank) forms in order to maximise the vehicles arriving from Europe and and bilateral partners (OPIC and country’s attractiveness. Firms in awaiting re-export) and 72 ha (of USAID). Implementation of this free effect have the choice of locating in which 21 ha are still vacant). zone regime, however, coincided with free trade zones at the port or airport, serious political troubles (October in the export processing zones (ZFTE), The range of sectors represented is 1990/March 1991) that quickly led or at free points. broad, characteristic of small devel- potential foreign investors to turn oping countries eager to diversify their attention elsewhere. The subse- In 2011, Togo has 4 ZFTEs: three at their economy: artificial hair (two quent economic and financial crisis Lomé (two of them in the port and Korean companies that export

Senegal Togo

Population 12,9 million Population 6,8 million Land area 197 530 km² Land area 57 385 km² World Bank lower middle-income World Bank low income income category (2011) income category (2011) GDP (2010, PPP) USD 22 009 million GDP (2010, PPP) USD 6 289 million GDP per capita (PPP) USD 1 711 GDP per capita (PPP) USD 928 Annual growth (2009) 2,2 % Annual growth (2009) 3,2 % Average growth 3,9 % Average growth 2,5 % (2002 – 2010) (2002 – 2010) FDI inflows (2009) USD 208 million FDI inflows (2009) USD 50 million ODA received USD 1 018 million ODA received USD 499 million (all donors, 2009) = 4,62 % of GDP (all donors, 2009) = 7,93 % of GDP = USD 81,87 per capita = USD 82,78 per capita Remittances (2009) USD 1 191 million Remittances (2009) USD 307 million = 9,1 % of GDP = 10,3 % of GDP = USD 95,78 per capita = USD 50,92 per capita World Bank Doing 154 out of 183 countries World Bank Doing 162 out of 183 countries Business Index (2011) Business Index (2011) Corruption Perceptions 105 out of 178 countries Corruption Perceptions 134 out of 178 countries Index (2010) Index (2010) Ibrahim African 15 out of 53 countries Ibrahim African 35 out of 53 countries Governance Index (2011) Governance Index (2011) Human Development 155 out of 187 countries Human Development 162 out of 187 countries Index (2011) Index (2011) p. 16

© Sahel and West Africa Club Secretariat (SWAC/OECD) West African Challenges / N°04, November 2011 15 throughout West Africa), motor- Despite the mediocre macroeconomic cycle assembly (based on parts context, job creation has been fairly imported from China), spices and steady (particularly since 2004), and herbs (for the European market), at the end of 2010 there were around exotic fruit processing, ornamental 8 000 persons permanently employed plant growing, and cement, among (representing half of secondary sector others. Licensed firms are exempt employment in Togo), mostly males. from corporate tax for their first 10 Further employment growth over the years in the country, after which the medium term, however, is possible rate is capped at 15% (versus 37% for two main reasons: Togo has been under the ordinary regime for indus- eligible for the African Growth and Opportunity Act (AGOA) since 2008, giving it The Togolese authorities adopted the access to the United States free zone concept in all its possible market, and the concom- forms in order to maximise the country’s itant resumption of IMF attractiveness. disbursements should help revive the Togolese economy and restore confi- trial companies and 40% for other dence among potential investors types of activity). The attractiveness (representatives of the Free Zones of this provision is illustrated by the Administration Corporation [SAZOF] fact that none of those firms having anticipate 12 000 zobs by the end of already passed the ten-year threshold 2012). have chosen to leave Togo to relocate elsewhere. As not much can be expected in this regard from companies based in In 2011, there were 57 operating industrialised countries, for which free zone companies (28% of them emerging countries are the main Togolese-owned and 20% French- attraction, the Togolese authorities owned) and 30 more were in the will likely target the bulk of their course of establishing themselves in prospecting efforts at firms based in areas as varied as lubricants, ethanol emerging countries, which will be production (50 000 ha of sugarcane attracted by the consumer markets and 2 400 anticipated jobs) for the of the poorest countries where Swedish market, perfumes, building technology transfers are much easier. materials, and plastics. Yet 60% of active firms have chosen to establish themselves under the free point formula (locating primarily in greater Lomé). By contrast, the airport free zone and the Kara free zone are still home to only one firm each.

16 West African Challenges / N°04, November 2011 © Sahel and West Africa Club Secretariat (SWAC/OECD) 2°O 0° Map 3 N BURKINA FASO 100 km Free zones in Ghana and Togo

White Volta 10°N Kara Tamale

BENIN CÔTE Black D'IVOIRE Volta TOGO

8° GHANA

Kumasi Université Paris Ouest Nanterre 2011 Cartographie : J.Robert, F.Bost, Semé- Lomé Kraké 6° Ada Keta Accra Tema Atlantic Ocean

Cape Coast Free Zone Half-Assini Sekondi-Takoradi Free Port Land eligible for free zone businesses Map 4 - Free zones in Ghana and neighbouring countries

4°E 12°E Map 4 NIGER Free zones in Nigeria

Maigateri Banki Kano 4°N

BENIN Kaduna

Abuja CAMEROON 8°N Osogbo N Ibadan 100 km

Free Zone set-up by the Lagos Federal Government Free Zone Planned Free Zone Onne Calabar Free Port Atlantic Ocean Land eligible for Free Points

Maps by J.Robert, F.Bost, Main oil ﬁelds Université Paris Ouest Nanterre 2011 Map 5 - Free Zones in Nigeria

to Nouakchott MAURITANIA Industrial Free Zone Map 5 Free Port Free zones in The Gambia Land eligible since 1995 for Export Businesses of and Senegal 16°NSt-Louis Free Zones(EFE) Maps by J.Robert, F.Bost, Université Paris Ouest Nanterre 2011 SENEGAL Thiès Dakar MALI Kaolack 14°N to Bamako Banjul THE GAMBIA

Ziguinghor N 50 km 14°E Map 6 - Free zones in Senegal and the Gambia

hile the free zones of West the question of worldwide relocation W Africa have for the time being of low-value-added activities is bound only shown modest results, they to arise. Some Sub-Saharan African cannot be dismissed out of hand. The countries (and those of West Africa in jobs created in those zones would not particular) could very likely position have come to be without those zones. themselves as host countries, provided They do, however, have two major that they can improve their business weak points. First of all, they have climate, they can firm up their not succeeded in attracting activities commitment to sector specialisation, relocating from developed countries and most importantly, that these activ- because of the weak competitiveness ities can enjoy the minimum level of customs protection needed to develop. As things stand, While the free zones of West Africa have for it is quite impossible for the time being only shown modest results, them to try to compete with they cannot be dismissed out of hand. Asia (and especially with China), which has already created serious problems for of their economies. And secondly manufacturing firms in Africa through (with the sole exception of Mauritius exports that benefit from considerable in Sub-Saharan Africa), they have as economies of scale and a vast reservoir yet failed to persuade local investors of low-cost labour. and entrepreneurs to make up for this deficiency and build up a favourable With their relatively modest ambitions, momentum. Those players, indeed, the free zones of West Africa are not seem more interested in conventional going to become hubs of the world rent-seeking activities geared towards economy. They could, nevertheless, import-export and raw materials and play a significant role over the longer where profitability and return on term in supplying the huge regional investment are more immediate. market (as demonstrated very clearly by the ZES project in Senegal or the It would be wrong to compare these Lekki FTZ in Nigeria). As of now, that West African free zones with their market is still characterised by the Asian counterparts. The free zones weakness of regionally-sourced trade of Asia were created in an entirely flows (averaging 10%). The recent different context, and they have “rediscovery” by business circles enjoyed a setting that was excep- in Western and emerging countries tionally favourable to their growth, (reported by the specialised media) of which can in part be attributed to the potential of these African regional the role of the Chinese diaspora, the markets (with 320 million potential support of the United States and Japan consumers in West Africa) augurs in opening their consumer markets well for sustained and healthy levels to products from Asian free zones of growth. This can, however, only be during the Cold War; heavy speciali- true if West African countries return sation in electronics; a highly trained to development policies focused on workforce; a very efficient regional industrialisation and create an import division of labour; development substitution strategy at the regional policies that were oriented early on level. towards the export of manufactured goods; and the exceptional activism of governments, investors and local entrepreneurs.

There is no reason, however, to think that the present situation in West Africa is cast in stone. Given the swiftly rising trend in wage levels in East Asia and in all emerging countries,

World Bank (2001). Les zones franches industrielles en Afrique subsaharienne. Findings, 193, 4 p. barbier Jean-Pierre (1990). Zones franches industrielles d’exportation : solution ou illusion ? Afrique contemporaine, n° 153, p. 72–80. bost François (dir.) (2010). Atlas mondial des zones franches. Paris, La documentation Française, 316 p. (en particulier le Chapitre 10, Afrique subsaharienne, p. 165–190. bost François (2007). Entre local et global : le cas de la zone franche de Lomé. In Lomé, dynamiques d’une ville africaine (dir. Philippe Gervais-Lambony et Gabriel Kwami Nyassogbo), Paris, Karthala, p. 121–150. bost François (2007). Les zones franches industrielles et de services, outil et levier du dével- oppement. In Philipe Cadène (dir.), La Mondialisation. L’intégration des pays en voie de dével- oppement, Paris, SEDES, p. 69–78. bost François (2004). L’Afrique de l’Ouest dans les stratégies des entreprises. In Damon J. et Iguë J., L’Afrique de l’Ouest dans la compétition mondiale. Quels atouts possibles ? SWAC Secre- tariat, OECD, Paris, Karthala, p. 369–396. bost François (2000). Les zones franches en Afrique subsaharienne. Paris, Editions du Centre Français du Commerce Extérieur, 274 p. cling Jean-Pierre, Letilly Gaëlle (2001). Export Processing Zones: A threatened instrument for global economy insertion? DIAL, Document de travail, 18 p., téléchargeable sur www.dial.prd.fr/dial_publications/PDF/Doc_travail/2001-17.pdf. UNCTAD. World Investment Report 2010, Investing in a low-carbon economy, UNCTAD, 220 p. Johanson Helena (1994). The Economics of Export Processing Zones Revisited. Development Policy Review, Vol. 12, p. 387–402. madani Dorsati (1999). A Review of the Role and Impact of Export Processing Zones. Washington, World Bank, Policy Research Working Paper 2238, 108 p. schrank A (2001). Export Processing Zones: Free Market Islands or Bridges to Structural Transformation. Development Policy Review, p. 223–242. Watson Peter (2001). Zones franches industrielles : l’Afrique a-t-elle raté le train en marche ? World Bank, Working Paper, 17 p.

Contacts and useful links

Ghana Free Zones Board, E-Mail: [email protected], www.ghanaclassifieds.com/gfzb nigerian Export Processing Authority Zones, Email: [email protected], www.nepza.org www.okftz.net www.onnefreezone.com société d’Administration des Zones Franches (SAZOF), Email: [email protected]

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