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Southern Africa Report Archive

Herbert Jauch examines critically a concrete area of economic policy-making - the apparent fetishization of Export Processing Zones (not merely in South Africa but in other southern African countries as well). (jbv)

vol 12 no 4

Regional Mirage: Southern Africa and the EPZ
Herbert Jauch


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Southern Africa Report

SAR, Vol 12 No 4, September 1997
Page 11
"Southern Africa"

REGIONAL MIRAGE
SOUTHERN AFRICA AND THE EPZS

BY HERBERT JAUCH

Herbert Jauch is the EPZ project co-ordinator of the International Labour Resource and Information Group (ILRIG) in Cape Town, South Africa.

With neo-liberal economic policies now uncritically accepted, to a greater or lesser extent, in all countries throughout Southern Africa, it is no surprise that the idea of establishing Export Processing Zones (EPZs) has recently found support among several governments of Southern Africa. According to the World Bank and generally accepted by countries implementing such policies, EPZs are seen as a first step in the process of liberalising trade and integrating national economies into the global economy. Regarded as a signal of a country's departure from import substitution towards an export-oriented economy, the expectation is that specific zones for export production will, in the long term, be unnecessary as entire countries begins to operate like an EPZ.

EPZs are presented by the governments in the region as a solution to low economic growth - promising they will bring foreign investment and jobs to their countries by making the country internationally competitive. Zimbabwe, Namibia, Malawi and Mozambique have already passed national EPZ laws, Zambia wants to follow soon and EPZ proposals are now appearing in South African policy documents.

Given the devastating experiences of Mexico, the Philippines, Indonesia and numerous other countries which have established EPZs for the same or similar reasons, it is hard to imagine this strategy will offer much to workers in Southern Africa. Indeed, attempts by governments to undermine labour standards, the marginalisation of unions and the generous incentives offered to potential investors suggest that the poor working conditions and negative consequences of EPZs in other countries will also characterize EPZs in southern Africa. The question now is whether resistance from unions will be sufficient to delay, stop or dramatically change the implementation of EPZ policies.

The first casualty: labour rights

The special incentives for investors - which characterize EPZs - often include the suspension of the host country's labour laws. This is the case in Zimbabwe and Namibia which passed national EPZ laws in 1994 and 1995 respectively. The exclusion of the provisions of the national labour acts drew immediate criticism from the labour movements. The Zimbabwe Congress of Trade Unions (ZCTU) engaged in intense lobbying with government and even sought support among local businesses to have the country's labour laws enforced in EPZs. After a tripartite delegation had visited the EPZs in Kenya and Mauritius in November 1994, a submission was made to government which argued that Zimbabwe's Labour Relations Act should apply. Although these arguments were eventually accepted by the government and President Mugabe promised to amend the EPZ act, this still has not happened.

In Namibia, the exclusion of the labour act from EPZ areas has also been a topic of heated debate. The government defended this position, arguing that both local and foreign investment in the first five years of independence had been disappointing and that EPZs were the only solution to high unemployment. President Sam Nujoma described the exclusion of the Labour Act as necessary to allay investors' fear of possible industrial unrest. He promised that regulations on conditions of employment would be put in place to address the fears of workers. In the meantime, however, he declared "the non-application of Namibia's Code in the EPZ Regime is a delicate compromise which is necessary to achieve the larger goal of job creation."

Namibia's major trade union federation, the National Union of Namibian Workers (NUNW), opposed the exclusion of the labour act as a violation of both the ILO convention and Namibia's constitution. The union federation instructed its lawyers to challenge the constitutionality of the EPZ Act in court. However, during a high level meeting between the government, SWAPO and the NUNW, in August 1995, an extremely controversial compromise was reached which stipulated that the labour act will apply in the EPZs, but that strikes and lock-outs would be outlawed for a period of 5 years. Although this compromise was greeted with mixed responses from Namibian unionists, it was formally endorsed during a special meeting between the NUNW and its affiliates in September 1995.

Generous incentives and low wages

EPZ laws passed in Mozambique and Malawi do not offer exemptions from labour legislation to prospective investors, but still provide most of the typical EPZ incentives. Indeed, offering exemptions in Mozambique was almost unnecessary as the country's investment law of 1993 already reflected major concessions to foreign capital as it treats foreign and national investors equally in terms of investment mechanisms as well as guarantees and incentives. For example, the government guarantees investors' property rights, freedom to import equity capital or borrow. Investors are also exempted from customs duties and are given generous tax exemptions, especially during "the period of recovery of investment expenditure," which can last up to 10 years. In addition, foreign investors may repatriate profits, royalties, loan and pay interest charges abroad. They may also repatriate their capital after liquidation or sale and are entitled to just and equitable compensation in case of expropriation for "absolutely necessary and weighty reasons of public and national interest, health and public order."

Legislation which paved the way for the establishment of EPZs in Mozambique (under the name of Industrial Free Zones) offered additional incentives to investors. For example, Mozambican EPZ investors can retain up to 20% of their net profits in foreign currency. Further, legislation stipulates that EPZ firms must produce at least 85% of their products for export while the rest can be sold locally, subject to normal customs charges levied on imports of similar products. They are also exempted from customs duties on imports such as civil construction machinery and materials, as well as on raw materials used for export goods. As well, they pay only a small royalty fee (2 to 5%) on their gross income, and there is no supplementary tax on profits for partners and owners of such firms in the first 10 years of activity

When the Malawian government passed an EPZ act in 1995, it was hoping that EPZs would help to expand the country's export base beyond the traditional agricultural products, that they would diversify the economy and expand the industrial base. Although all national laws (including the labour act) apply in EPZs, cheap labour is seen as a major incentive. At an investment conference in April 1997 in South Africa, a Malawian trade delegation offered prospective investors a minimum wage of US$20.00 per month as a special incentive. The government's `flexibility' with regard to EPZs seems so great that it is open to offer almost any other additional incentive to attract investors - even if they stay for only a few years.

South Africa's EPZs: in through the back door

Although South Africa has not established any fully fledged EPZs, the country appears to be well on its way to creating labour conditions and investment incentives which closely resemble EPZs. Already in the 1980s the apartheid government had introduced a number of policies which resembled those associated with EPZs. Along with the prohibition of trade union rights, deregulation laws allowed the government to declare certain areas free from national laws governing conditions in the workplace, and various concessions and subsidies were offered to companies prepared to invest in designated areas, especially in the bantustan "homelands."

However, unlike `classic' EPZs, industrial decentralisation strategies with respect to the `homelands' were located within an overall inward-looking national industrialisation strategy. Thus, such decentralised industrial areas were not deliberately located close to transport facilities, such as harbours or airports, the way EPZs normally are. THESE Industrial and regional policies were not very successful in attracting new investment and promoting economic growth. Nevertheless, during the early 1990s the idea to establish EPZs in South Africa gained new momentum. A lobby calling itself the South African Special Economic Zones Association was established. Its members included both parastatal and private companies such as Eskom, Rainbow Chickens, Sanlam Properties, Mondi, Spoornet, Renfreight, Boland Bank, the Independent Development Trust (IDT) and Nissan.

By 1992 various groups had completed a number of studies on EPZs. The Export Processing Zone Council of the Department of Trade and Industry (DTI) put together a draft document, "Policy and Regulatory Framework for the Establishment of Export Processing Zones (EPZs) in South Africa." By 1993 the apartheid cabinet had apparently approved in principle the creation of EPZs, with the possibility of establishing the first EPZ the following year. Although this was prevented by the elections of the new government in 1994, the strategy appears to have only been slightly delayed rather than completely abandoned.

Perhaps encouraged by the overall neo-liberal economic thrust of the new government, advocates of EPZs are surfacing again with EPZ proposals `in disguise' . The most common form is "Industrial Development Zones" (IDZs), promoted by South Africa's Department of Trade and Industry. Engineered and promoted by some of the old apartheid bureaucrats, IDZs are defined as geographically defined areas in which incentives are offered to manufacturing firms to establish themselves. In addition to national investment incentives, local governments can grant special incentives, e.g., subsidised water, electricity or land. Companies can also benefit from infrastructure provided by government, such as roads, harbours and railway lines.

Regional implications

The introduction of EPZ laws in Malawi, Mozambique, Zimbabwe and Namibia, and the proposals in South Africa are indicative of the countries' desperate attempts to attract foreign investment as a means of creating much-needed jobs. This desperation is reflected in the willingness of the Zimbabwean and Namibian governments to even exempt EPZs from their national labour legislation. While, on paper, the Mozambican EPZ regulations seem more accommodating of workers' rights, given the extreme difficulties of the Mozambican economy and the government's zeal to attract and keep foreign investment, it seems unlikely that the authorities will be over-zealous in monitoring and imposing conditions upon investors. Also, the trade union movement in Mozambique is relatively weak and might find it difficult to monitor and ensure that the formal provisions are observed. Given the low levels of unionisation, the extreme poverty and high unemployment rates, and the direct influence of the World Bank and IMF, Mozambique is in no position to impose strict investment conditions on foreign capital. Not surprisingly, the same applies to Malawi.

Recent attempts by Southern African states to introduce EPZs should hardly be applauded. Not only are these strategies bound to fail in creating jobs and strong economies, this approach is likely to threaten attempts towards regional economic integration. Why?

Firstly, international experiences with EPZs since the 1960s have shown that they are not leading to sustainable economic development. On the contrary, this growth strategy has resulted in deepening developing countries' dependency on foreign capital and can have a detrimental effect on national industries. Not only have they failed to offer a solution to rising unemployment, they have most often worsened living and working conditions for workers. Further, due to the enclave nature of EPZs, they hardly develop `backward linkages' with the host economy and do not lead to technology transfer.

Secondly, as Dot Keet pointed out, Southern Africa is facing a highly competitive - in fact ruthless - global economy "in which there is really little prospect for any of the Southern African countries being able to offer terms and prospects that will really create successful EPZs - even on their own terms." At a time when Southern Africa is still trying to establish EPZs, they are already superseded by more sweeping neo-liberal policies which create ever more favourable conditions for international capital.

Thirdly, in their eagerness to attract foreign investment on almost any terms, the governments of Southern Africa are entering into competition with each other. They compete for the same investors by offering ever greater concessions to foreign capital. This competition for investment produces a downward spiral in EPZ conditions where the benefits accrue to the investors and the costs with the host countries. As SADC member states scramble for foreign investment, EPZs are likely to erode existing social, labour and environmental standards throughout the region. Even where governments are intent on defending the social gains made, they find themselves in a weak position to do so. The lack of alternative programmes for effective economic development and job creation puts governments at a disadvantage in negotiating adherence to labour, social and environmental standards with foreign investors.

Challenging EPZs?

There has been a mixed response from local businesses to the EPZ proposals in Southern Africa. Some support the EPZs in the hope that they will be able to benefit from the special incentives offered. Some might also see EPZs as an opportunity to undermine trade unions. Others - especially smaller businesses which produce for local markets - fear that EPZs will provide additional advantages to foreign transnationals. These TNCs might then wipe out local companies by selling cheaper products legally or illegally (through "leakages") on the local market.

Given the threat that EPZs pose for labour rights, it IS no surprise that unions have deliberately been excluded from the processes of establishing and monitoring EPZs. EPZ boards established in every country throughout the region are dominated by business interests and lack any union presence. However varied the support is from business, so far the only serious challenge to this type of industrial strategy has been coming from the labour movement. Trade Unions in Zimbabwe and Namibia responded promptly to the EPZ legislation and demanded amendments to accommodate the provisions of their labour acts. The Zimbabwe Congress of Trade Unions put forward powerful arguments by pointing out that cheap labour production is no longer a viable option at a time when new technologies require more skilled workers. The ZCTU further argued that poor working conditions result in lower productivity and a low product quality - which could not even be in the interest of prospective investors.

The Namibian trade unions' criticism of EPZs also targeted the non-application of the labour act even if they did not raise the broader problems associated with EPZs as a development strategy. Meantime, while unions in South Africa were first slow to really challenge the establishment of EPZs, stronger opposition is building. For example, instead of completely rejecting this economic strategy, in 1993 the National Union of Metalworkers in South Africa (NUMSA) passed a resolution which argued that any and all investment in South Africa must comply with all labour legislation. Earlier this year, at the unions' latest policy conference, EPZs were rejected as a development strategy for the country.

Likewise, South Africa's major union federation, COSATU, opposes EPZs on the basis that they are not a viable industrial development strategy for South Africa. The Southern African Clothing and Textile Workers Union (SACTWU), affiliated with COSATU, also objects to EPZs on economic and social grounds. It points out that the "footloose" investors which EPZs attract neither develop the national economy nor create sustainable development. On the contrary, SACTWU argues that EPZs "undermine the local economy" as a result of dumping of cheap products through "leakages."

A regional approach

Given the regional aspects of EPZs, individual responses by unions in Southern Africa are unlikely to stop their development. Unions are realising this and therefore have begun to develop a more coordinated approach. In 1995 the Southern Africa Trade Union Co-ordinating Council (SATUCC) which brings together the leaders of the main national trade union federations, commissioned the International Labour Resource and Information Group (ILRIG) and the Centre for Southern African Studies (CSAS) from Cape Town, to investigate the economic, social and political implications of EPZs in Southern Africa. This was complemented by research on health and environmental issues in EPZs, conducted by the Harare-based Training and Research Support Committee (TARSC). On the basis of these findings, trade union leaders from the region debated EPZs at a workshop in March 1996 and passed a resolution stating their opposition to EPZs as a development strategy for Southern Africa. They not only rejected concessions on labour, environmental and health standards In EPZs, but also identified EPZ policies as a threat to industrial democracy, sustainable development and regional integration.

Although the resolution is a good starting point for a broad campaign against EPZs in Southern Africa, trade unions will have to do more to challenge their governments' (neo-liberal) economic policies. They will have to move beyond mere criticism towards alternative development strategies. The ZCTU's policy proposals "Beyond ESAP" (Economic Structural Adjustment Programme) represent a step in this direction and similar initiatives seem essential in all countries of Southern Africa. At present, trade unions seem to be the only social organisations capable of seriously challenging government policies through organised action. However, SATUCC's role so far has essentially been one of bringing national union leaders together and lobbying governments at SADC level. More direct action across borders and a far greater involvement of union members in regional policy issues are essential, if SATUCC wants to move beyond its role as a mere "talk shop."

Given the fairly small industrial base in most countries of Southern Africa, trade unions will have to consider strategic alliances with social organisations like communal farmers unions and women's organisations to build a mass movement with the legitimacy and capability to challenge EPZs and other neo-liberal development strategies in Southern Africa. EPZs are certainly not holding any prospects of solving the region's socio-economic problems and they are threatening attempts to achieve greater self-sufficiency and sustainable development.

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BOX:

FROM REGIONAL CO-OPERATION TO REGIONAL COMPETITION

The EPZ Business Plan of Namibia's Ministry of Trade and Industry illustrates the competition for investment between countries implementing EPZs. This plan notes that Namibia's EPZs should initially target light industries such as textiles and garments, electronics, footwear and leather goods, sporting goods, pharmaceuticals, household goods, car assemblies or car parts. It points out, further, that Foreign Direct Investment from Japan, Hong Kong and the large transnational companies are now being joined by investors from Korea, Taiwan, Malaysia and Singapore. "As operational costs in these locations escalate, many of the companies are forced to relocate their lower value-added lines. Companies operating from Mauritius and even South Africa are also considering relocation. The ODC [Offshore Development Company] should, therefore, try and target these countries."

In July 1997, the executive director of the Namibia Investment Centre, Steve Galloway, visited Cape Town to encourage South African clothing and textile companies as well as footwear and general leather manufacturers to relocate their production to Namibia's EPZ in Walvis Bay. "But we're not trying to convince them to relocate their entire operations to Namibia, but rather that part which is very labour intensive," he said. According to Galloway, such a move would be viable and help companies to increase their global competitiveness as wage rates in Namibia were only half, and in some cases a third, of those in South Africa.

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