West African Challenges / N°04, November 2011 © Sahel and West Africa Club Secretariat (SWAC/OECD) the Example of West Africa
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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. © Sahel and West Africa Club Secretariat (SWAC/OECD) WEST AFRICAN CHALLENGES / N°04, NOVEMBER 2011 3 A WORLDWIDE 1 PHENOMENON 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