One of the greatest ironies of economic theory is that it tends to create the world that it attempts to empirically and “neutrally” describe. In the case of Africa’s EPZs, with the notable exception of Mauritius, the neoclassical perspective has largely dictated the policy agenda. Africa has been a latecomer to EPZs and where and when it has embraced them, it has done so half-heartedly, preferring the neoclassicals’ second best option of countrywide liberalisation. EPZs in Africa have rarely been seen as more than marginal contributors to national economic growth and development, their involvement being limited to an off-centre provision of employment, foreign exchange and the attraction of FDI in non-strategic sectors of economic activity. The focus of development in the 1980s and 1990s was structural adjustment.

Arguably, one of the reasons for this state of affairs is the comparatively strong position of organisations like the World Bank and the IMF to influence policy-making. These organisations have not carried such influence in east, south and south-east Asia.

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Africa’s EPZs have been a missed opportunity for the effective promotion of a turnaround in the economic structure of the region’s economies toward export-oriented growth. The EPZ option has not been played effectively in the region because of how it has been framed within the broader economic policy framework. Cases in east Asia and the case of Mauritius clearly show the potential of EPZs to play a crucial role in turning economies into export power houses, with significant macro, meso and micro economic benefits.

Lessons from Mauritius

Mauritius is one of the most spectacular examples of economic development through the use of an EPZ. A sugar cane monoculture economy at independence in 1968, characterised by chronic dependency on the sugar market, since the mid-1970s Mauritius has succeeded in progressively changing the structure of its productive sector. The Mauritius EPZ (MEPZ) was created in 1971 and in 1985 overtook sugar as the prime source of exports, foreign exchange earnings and employment, symbolising the gradual diversification of the economy. Although the relative importance of the MEPZ has declined since the early 1990s due in part to the continued effort at diversification, it is a vital pillar of the Mauritian economy.

World Bank view

There was tremendous debate about the source of the success of Mauritius as a whole and of the EPZ in the late 1980s and the 1990s. Not surprisingly, the World Bank has downplayed the function and importance of the MEPZ in the success story, proposing that its root has been in the adoption and effective implementation of IMF-backed stabilisation plans and World Bank-supported structural adjustment programmes.

As the 1989 report, Mauritius, Managing Success, states: “Mauritius has followed a labour-intensive, export-oriented strategy which has benefited from the following factors, among others. First, government policies set in place in the late 1970s and early 1980s created a favourable environment in which private sector initiative has flourished. The government can take credit for having laid a suitable foundation for export-led growth by undertaking appropriate stabilisation and structural adjustment measures.”

The heterodox critics

Subsequent studies, less concerned with the advocacy of policy reform programmes with vast stakes for Africa, have taken issue with the analysis. A 1990 paper presented the Mauritius experience as one similar to that of the Asian NICs. The Mauritius case reproduces key developmental characteristics, notably in the domain of education, infrastructures, labour management, savings and investment, and entrepreneurial development. The paper characterised Mauritian policymakers as “pragmatic, bold, innovative, and closely attentive to the NIC experience”; “the leading entrepreneur is the government itself”, it said.

The state’s role

It is clear that the state created the necessary conditions for Mauritius’ competitiveness by instituting the EPZ. The state played a central role in the initiation of the zone. Recognising the extremely limited impact of the import substitution programme, the state – under the leadership of prime minister Seewoosagur Ramgoolam and foreign minister Gaetan Duval – aggressively explored alternatives.

At the end of the 1960s, the government sent a team to study the export-oriented policies of Hong Kong, Jamaica, Puerto Rico, Singapore and Taiwan. Based on the team’s report, Mauritian leaders decided to embark on an entirely new form of manufacturing activity: the processing of imported raw materials into finished goods for export. In December 1970, the Mauritian parliament passed the Export Processing Zones Act providing a legal framework for the EPZ approach.

The state, through the government, created the necessary political conditions for the adoption of an economic instrument that was perceived as a threat by many. The government had to convince the powerful economic and political interests that opposed the project to accept it. Particularly opposed to the EPZ solution were the sugar barons, at the helm of the largest sector of the economy, and the Mouvement Militant Mauricien (MMM), the Mauritian communist party. While the sugar barons were concerned about the negative consequence of the EPZ on labour cost, the MMM opposed a choice that would insert Mauritius into the capitalist international production system.

In addition to its strategic role in initiating an early shift towards export-orientation and providing the political resources for the adoption of the EPZ, the state implemented the zone by creating the framework for its development and adaptation over the years.

State ownership of the MEPZ was and remains the expression of a succession of dedicated governments and increasingly professional and competent bureaucracies. The difficulties experienced in the late 1970s led to a number of proactive measures that were not merely equivalent to liberalisation but resulted in increased state economic capacity. These measures included the creation of an Industrial Coordination Unit within the Ministry of Industry, whose task was to simplify the investment process in the EPZ. Another measure was the institution of the Mauritius Export Development and Investment Authority (MEDIA), a parastatal organisation whose mission has been to:

  • promote the export of goods and services;
  • engage in investment promotion activities;
  • develop and operate industrial sites and estates;
  • plan, implement and review export oriented manufacturing.

One of the single most important measures adopted by the government was the authorisation granted to domestic firms to invest in the EPZ. This measure, aimed at limiting capital flight, allowed the zone to play a decisive catalytic role in the development of the island. The EPZ played a crucial role in technology transfers and transmission of skills and know-how, at both the intra-firm and the inter-firm levels, between foreign and domestic firms. This encouraged domestic firms to enter the export market. By the early 1990s, there was a highly successful export-oriented domestic industrial complex. This complex, either autonomously or in co-operation with international partner firms in the areas of production, design, marketing, logistics and financing, controlled significant parts of the production chains in which they were present. The MEPZ has been the environment within which the private sector has been able to use domestic factors to produce internationally competitive products, inserting itself into several international commodity chains. Through a number of institutional arrangements, private domestic concerns have heavily invested in the EPZs, introducing stability in the EPZ sector and creating the foundation for technology and knowledge internalisation.

1. Look again at EPZ impact

 

2. The heterodox view

 

4. Domestic core