Under a number of arrangements, including subcontracting, joint ventures and observation, domestic firms progressively learned production techniques. In addition, by integrating themselves in international commodity chains under a number of production arrangements, domestic firms internalised elements of the production, distribution and marketing processes that they use to upgrade their competitive position. Soft transfers, consequently, played the defining role in the process of productivity improvement.
Therefore, contrary to explanations advanced by numerous perspectives, the EPZ’s success as a development instrument has not simply been the expression of Mauritius’ post-1982 attractiveness to foreign capital, but rather is the result of a dedicated strategic focus toward economic growth and development.
Implications for Africa
In light of the perspectives discussed above and the case of Mauritius, an EPZ policy should not be developed simply to generate static benefits such as employment and foreign exchange earning in an enclave system. In such a case, it is likely that the net benefits will be marginal and probably negative. Given the rising opposition to investment policies that are perceived as exploitative by labour unions and civic society organisations, the political cost of the enclave approach may be high.
An EPZ policy should seek to maximise dynamic benefits not exclusively in relation with progressive liberalisation but, as importantly, in relation with the progressive increase of productive capital investment. This means that regulation should encourage domestic investment in the EPZ sector. However, this investment should meet tough criteria of export performance and productivity/production development. Partnerships with foreign investors should be encouraged under a variety of schemes.
The development of EPZ infrastructure should be pragmatic and progressive, matching demand. State funds should be employed only to provide basic infrastructure and adequate planning. Such infrastructure should therefore be designed on principles of flexibility, adaptability and progressivism. Irreversible investments that are incurred solely for the EPZ, such as the acquisition of large scale property, the construction of expansive (in size and capital) sole use roads, the construction of power plants, and so forth, should initially be avoided. Only as productive investment in the zone increases and reaches a notable point of contribution to GDP should such development be considered. Pragmatism should rule, balancing the budgetary and political risks of public fund investment with the risk of not conducting such investments (such as capital flight).
An EPZ scheme should not seek to achieve regional development objectives. On the contrary, it should seek to foster economic concentration around a well developed urban centre to attract the best layers of domestic capital, the most educated and productive labour, and provide accessibility to urban infrastructure and amenities to foreign investors. The need for centrality and economies of scale should be balanced against issues such as urban congestion, pollution, environmental degradation, accessibility to labour, quality of life for labour, and so on. These issues should be incorporated into the feasibility study and surveyed seriously.
Property development and management should be left to the private sector, preferably under the form of domestic-foreign development consortia seeking to maximise local return on investment with the contribution of foreign capital, expertise in property development and management of industrial property. Accordingly, national regulation should provide for the feasibility and economic viability of EPZ property development, ownership and management by private concerns.
This may mean that EPZ property is offered for rental, leasing and sale, and that the property hosts a cluster of mutually reinforcing activities beyond traditional manufacturing activities. This may mean service, warehousing and wholesale activities in addition to manufacturing. The implication of this is that the zone property, understood to be the area under customs administration or supervision, may constitute only a portion of the entire property under private ownership and management.
Promotion of the EPZ sector should not be left to government-owned and run investment promotion centres. Rather, promotion and marketing should be under a co-operative arrangement bringing together government, property developers, owners and managers, and EPZ firm operators. Ideally, this coalition of stakeholders should include the local chamber of commerce and relevant industry associations. Investment promotion should be carefully planned via rigorous analysis of international economic trends and domestic comparative advantage.
Promotion should be directed not only at potential overseas investors but also at the domestic economy, the purpose being to attract top layer domestic capital and to foster interest and ownership in the EPZ. It has been shown that domestic investors can play the role of anchors, improving the attractiveness of the zone to foreign investors, who rarely like to play the role of pioneers in a brand new and empty zone.
EPZ property developers, owners and managers, EPZ operators, labour representatives, and government officials in charge of regulation and administration of the EPZ regime should work closely together on EPZ development strategy and policy. Initially, this should take the form of a regular dialogue. As the EPZ progressively evolves, the co-operation should be formalised via the creation of a consultative policy body including all major stakeholders.
Claude Baissac has been providing expert advice in emerging markets for 10 years, with a specialised focus on Sub-Saharan Africa. This article is the result of doctoral research conducted between 1996 and 1999 and consulting in Africa, the Caribbean and the Middle East.