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MAJOR TREND IN FREE ZONE DEVELOPMENT II



Chris Okwy Ndibe
On Monday, I tweeted that the “optimum role of the public and private sectors in creating successful free zones involves a balancing between the public services and infrastructure and private sector , Management experience flexibility and marketing efficiency”.

Traditionally from the start of this Scheme, Export Processing Zones were planned and managed by designated government agencies as part of general policy of the state, aimed at an increase in industrial investment, enhancement of industrial reputation of new manufacturing companies. The main aim is to increase exports, usually to replace an import substitution situation. Also often aimed at increasing employment, foreign currency earnings; and further investments outside the zone.

The success of this is a situation where there are no insurmountable difficulties; politically, socially, or financially. Once a zone succeeds, other investors come with their adjoining industries like tourism and services.

The leadership of the host country has the responsibility of looking at the enabling laws, making the incentive attractive, putting the infrastructures; i.e. “encompassing facilities”….. not only in terms of electricity, water and sewer, but port handling facilities, rail and high way facilities as well.

The provision of infrastructure splits into two:
1.    Behind the zone fence which is the responsibility of the state. Without this an investor may not be interested.
Government has to provide a package, not just physical infrastructure, but incentives, support services and a programme of pro-investment policies. Infrastructure is always part of national policy. Private operators either take over a zone originally built by government, or apply to construct it on a site suitably linked to good quality infrastructure.

2.    Private zone operators only accept the business risk if the state does its part, since they have to finance not only factory construction, but also service hook ups, staff cost and promotional budgets.

Private zone operators have multi-disciplinary skills, combining real estate know-how, industrial estate management, marketing research, personnel and training.

To ensure a profitable zone operation, the charges made to investors, to cover factory rent and services have to be low enough to be an acceptable cost input to the cost of production which manifests in export price calculations. Also with raw materials, wage costs, taxes and fees have to be low enough to accommodate these charges.
The Private operators of zones also have not only to be cost-efficient, but the cost of renting land has to be low
Today, private operators are encouraged because of high calibre of industrial managers which are needed in zones management structure to negotiate with government and banks, and at the factory level, to deal with the owner/investors, who rent factories and expect high level of services. The private sector now takes over the management responsibility in the zone, while serving the policy objectives of creating employment and earning foreign exchange. Besides, it is the global trend now to privatise what was previously a function of government.
At first when the zone scheme started, all EPZs were government owned; later governments saw the wisdom of allowing the private run the zone and still achieve the government objectives. This stems from general realization by World Bank and other major aid agencies that the private sector involvement hired well qualified experts with line management experience of private sector manufacturing, marketing or market research.

 The transformation continues in Part III…………..