WHY DEVELOP FREE ZONES?
With my country (Nigeria) in mind, I ask the above question. The question is not intending to distort the facts but to raise more facts. I would therefore want my readers to consider the facts, tenets and trend of Free Zone Scheme before we start answering the above question which will lead us to what should be the way forward. Mark Twain once said, “Get your facts first and then you can distort them as you please”.
Free Zones have been growing in number during recent years and their efficacy as hubs of economic activities has changed the dynamics of international trade, investment flows and manufacturing supply chains. They are now believed to be more than 3,500 Free Zones around the world, supporting an estimated 70 million jobs. These figures are significant and have ensured that Free Zones now have a fixed and increasing relevant place on the world stage; however they still face challenges (WFZO, 2015).
Zones development is one of the many trade policy tools at the disposal of a developing country’s government. They are typically created as an open market cases within an economy that is dominated by distortion trade, macroeconomic and exchange rate regulations and other government controls.
Free zones are to have a specific life span, since it is an integral part used to further economy – wide reforms. Losing their significance as countries implement systematic trade, macroeconomic and exchange rate reforms, as the economy opens up and a country develops its capacity for competitive industrial exports.
Free zones provide the much needed foreign currency to accommodate import needed for the host nation and create jobs to alleviate some of the national unemployment or under-development. It can also be seen as a safety valve because of incentives and other activities allowable.
Free zones can be used as laboratories to experiment with market economy and outward-oriented policies.
Finally, free zones incentives enhance the attraction of FDI, matching or surpassing the incentives provided by their neighboring countries for investors.
Free trade zones also express that:
- Economy wide duty-free import systems should be emphasized over specific zones;
- Support to free zones should be considered individually for each economy, in the context of broader trade policy reforms involving a shift toward outward oriented development, mainly as transitional instrument for helping economies enter world market;
- Private development and management of zones is to be encouraged and when public development is required, special arrangement ought to be put in place to ensure full cost recovery (development cost, including land rents and operating costs) and efficient management.
Free zones are therefore efforts to improve allocation efficiency in previously highly regulated and protected economies. Their role should be transitory toward the establishment of fully liberalized trade systems in order to avoid:
- the reinforcement of welfare reducing distortion;
- the constitution of dual economic structures harmful to short and long term growth;
- the creation of economic rents that are similarly harmful.
In addition, everything should be done to minimize heavy public investments resulting in a decrease of the potential, yet limited benefits of free trade zones.
In line with the knowledge of the above, comes the knowledge of the operations of the scheme in the continent. A lot is still yet to be desired by the host governments, inter-government agency relations, supervisions and regulations (especially Free Zone Agencies and Customs).
If we must do it right for the benefits appertaining thereto, we must as a matter of urgency, fully understand what a host country needs, taking from the different variants of Free Trade Zone; spell out responsibilities, functions, regulations and limits, thereby answering the question “why develop Free Zone?”. The answer to this question is still desired in most African countries to enable us function as we ought to.
Unlike the Free Zone Operations which is a one-stop shop, this piece is not.
Executive Secretary, (AFZA)