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The Role of Free Trade Zones in Actualising Continental Free Trade Area (CFTA) By Chris Okwy Ndibe


Chris Ndibe

Most African Countries need what each other produces and so using the continent as one single market may be cheaper for the producers and buyers and at the end developing the overall economy of the continent.
The concept of Free Trade Zone is that it is an alternative policy framework, developed by government, to promote policy objectives of government. Sometimes this involves a specific geographical region, often involves specific industry such as banking or insurance, or companies with some common behaviour such as export oriented, high technology content.
The Free Trade Zones of today are quite different from the Free Trade Zones of the past. Although they serve a largely similar purpose, they have grown increasingly complex and are thus involved with an increasing volume and variety of economic transactions. Contrary to the view of the Trade Bureaucrats and Liberal Trade economists, the liberalization of trade has not eliminated the need for Free Zones, but rather expanded their roles. As globalization takes place the formation of Free Zones continues at an increasing rate and encourages export manufacturing.
Free Zones are being defined as “outside the customs territory” for the purposes of the assessment of import duties and taxes. Free Zones typically allow for duty-and tax-free imports of raw and intermediate materials and, in many cases capital equipment. This is to lower the cost of production so as to enable the product compete favourably at the international market.
Free Trade Zones will attract Multi-National Corporations to investing in certain areas of production especially in areas where a product has comparative advantages or built up production capacity. Therefore linking the local specialised suppliers and vendors of a particular industry with zone-based companies may create strong and cost-effective local supply relationship, contributing to overall growth.
Many modern generation models of Free Trade Zones have relaxed stringent export – performance requirements. Therefore could have the market within. Africa has a large market and may override china and India by 2050.
Given that trade between nations in the form of import and export activities has been going on for centuries and products from Free zones, produced at low cost has been exported to neighbouring countries with lots of huddles, CFTA will open the way for both sides of producers and buyers in countries. Also, zones specialising in production and supply of location – specific and craft – specific goods, will emerge to meet the demands of the products.
Free Zones in the continent can produce an alternative to products imported from other continent. This in-turn saves the purchasing currency and builds the host country and locality. Meanwhile, the developed products can be perfected to be preferred than the main product which with good marketing strategy, will penetrate other markets once value is captured and customers are satisfied.
The evolution of Free Zone brought along with optimising the business operations, improving the bottom line, constantly seeking to enhance shareholder value, cost reduction, profit maximization, technological advances as well as improved government policies and easy access to finances (we shall elaborate on this in subsequent posts).
Riding on the back of an established scheme like Free Trade Zones will propel CFTA initiative faster. There is no doubt that over 600 Free Zones in the continent will start taking advantages of geographic proximity factor giving credence to that fact that CFTA is a reality.
Therefore Free Trade Zones are central to the actualization of CFTA initiative when we consider supply chain efficiencies, cost consideration and easier access to the product and market. Because of the free trade policy environment that Free Zone is known for. Free Zones create space for the robust growth in global supply chain and global production network as can be seen from the Asian Tigers and the BRICS. There is no way Free Trade Zones cannot play a vital role in the actualization of CFTA.