What you need to know:
- Cumulative capital investment in Free Zones as of June 30th 2022, stood at $1.54 billion.
- In an interview with Prosper Magazine’s Ismail Musa Ladu, the executive director of Uganda Free Zones Authority, Mr Hez Kimoomi Alinda noted that the future is looking bright if only challenges pertaining to acquisition of land for establishment and development of Public Free Zones in the country are dealt with. Excerpts ...
What's the relevance of Free Zone for an economy like Uganda?
Free zones are gazetted geographical areas which are intended to provide a transnational business environment outside the customs territory of Uganda to attract global long term capital into the country and also provide a conducive environment for domestic investments in value addition and manufacturing to be able to augment private sector efforts in industrialization. And when you do that, you enable your business community to manufacture and process competitively for markets beyond its borders. Free Zones are largely intended to ensure that Uganda as an economy gets integrated fully into the global supply and value chains. And that creates linkages within the economy, especially backward demand linkages.
So what is that unique service that you provide that makes you stand out?
Once we gazette an area as a special economic zone or as an Export Processing Zone, it means we have literally taken that geographical area out of the customs territory. So whoever is licensed to manufacture or process in that gazetted area is doing so in an extra-territorial environment. For example, if a Chinese investor has a Free Zone license to operate in a gazetted Free Zone under the provisions of the Free Zones Act, 2014 and the East African Community regional regulatory framework on Special Economic Zones, it will be as if the investor is operating in China. In other words, the investor/developer or operator of the Free Zone will be freed from the border customs restrictions regarding the movement of inputs and factory products. They will have swift port clearances, and exemptions from duties that may be applicable for all the inputs that are required in the production and packaging of what they're producing for export.
You also don’t have to worry about corporate income tax as the law exempts you from it with no threshold. This is in addition to VAT exemption on any payment of feasibility studies, design and construction services, and any other equipment that you may need in your licensed Free zone. Further, during the development phase, you are not expected to be paying excise and stamp duty as well as personal income tax if you are providing technical assistance under any technical assistance program. So, the idea for all these exemptions is to create an environment where you can do business competitively by benefiting from the advantages of agglomeration, co-location and clustering.
What is your assessment of the current export situation?
We are not in a good position when you look at our current account. We also know that this specialised export promotion scheme for dealing with brick-and-mortar deficits as well as regulation is still young. There is a need for support and promotion. At the regional level, whoever will harness the advantages of the Free Zones will likely have an advantage in terms of export growth and faster economic development. We are working, as a government, towards making public investments in export-oriented industrial infrastructure through the acquisition and development of land. We are also encouraging Local Governments to provide land for export-oriented industrialization. Our experience is that the land provided by local Governments is not sufficient enough for our cause because of challenges related to scale and location.
Our plan in the short to medium term is to be able to acquire at least 4,000 acres of land by the 2024/25 Financial Year for the development of public Free Zones. In the medium to long term, we are talking about special multimodal economic zones that will be set up in the four different regions of the country. Once we do that, Kampala will be decongested while at the same sorting out most of the urban challenges related to crowding. We are looking at having one in North Buganda - Bulemezi area, then have another one in Western Uganda -- north of Bunagana and south of Ntoroko to capture the DRC market. We are also looking at Eastern Uganda along the route to the sea and another one in northern Uganda and West Nile region to serve South Sudan and even Central African Republic market. All this development will eventually reduce the cost of doing business in a practical way and enhance our competitiveness in the regional market and even beyond.
What will be the ultimate return on investment?
At the grand strategy level, we are expecting to create about 1,727 factories in every 6400 acres of land. Imagine if each of these factories is exporting $1 million and employing 100 people—just think of the return on investment and the circular flow of money – from producers to households and back again in an endless loop. And that is what we are all about!
For the long term plan of 25,600 acres, when you do the math, that translates into $6.9 billion annually in exports and 690,700 jobs. Remember our participation in the global export trade is about 0.02 per cent, so we are not there yet. With the Special Economic Zones, we can achieve our intentions real quick. But we have to be deliberate and intentional.
How is this scheme working elsewhere?
Let us look at calendar year 2019. Kenya’s Free zones created 61,000 jobs, and $635 million in exports. As for Tanzania, it created 56,000 jobs and exports amounted to $2.2 billion. In Uganda, we created just over 8,600 jobs and $154 million in exports. However, In Kenya, Konza Technopolis Special Economic Zone, marketed as a key driver of Kenya's National Development Plan will be able to attract people who want to become creators in the technology space from all over Africa and the rest of the world. It is actually codenamed the Silicon Savannah. These are the kind of things that we want to create here. Other examples from across the continent include Tema Free Zone in Ghana and Coega Special Economic Zone in South Africa.
How relevant is your role in the wake of current inflationary pressures and COVID effects
Our belief is that we can build an independent, integrated and self-sustaining national economy that is anchored largely on import substitution while properly implementing an export-led industrial policy, given timely support. We can also get more out of Free Zones without losing anything as an economy. In the long term, Free Zones by their very nature increase economic activity and widen and deepen the indirect tax base. We believe that attracting long term investment capital should be the priority. Free zones create demand which in turn creates its own supply. As Uganda Free Zones Authority, we are active members of the Africa Economic Zones Organisation, we are voting members of the World Free zones Organisation, and also members of the Global Alliance on Special Economic Zones. Through these memberships and affiliations, we come across information, knowledge and experiences of best practice in the development and organization of Special Economic Zones that can improve how we operate in times like these.
Trials and tribulation in your cause to promote exports?
There is so much we would want to do if it was not for the outstretched resource envelope that we have. Out of our 8 years of existence we have 32 Free Zones, one public free zone under development at Entebbe International Airport and secured various pieces of land across the country. As government we need to be able to be intentional on creating these transnational spaces to be able to compete in the global manufacturing trading space.
Overall when you look at exports in 2020/2021 Financial Year, Free Zones contributed 23 per cent of Uganda’s total exports which was about $1.247 billion. A lot of this was actually gold re-exports after undergoing processing here coming from DRC, Tanzania, and some from as far as Zimbabwe. This goes to show how attractive the Special Regulatory environment is in Free Zones.
Last year, the levy on processed gold of 5 per cent in the customs territory was also applied to the Free Zones. As a result of that, Uganda’s recorded exports dropped.
Jobs went up by 17.5 per cent Year on Year from 8389 to 9861 in the current year. In terms of investment, we have had a 9 per cent growth in exports from $586 million in 2020/21 to $644.76m in 2021/22. The cumulative capital investment in Free Zones as at 30th June 2022, stood at $1.54 billion.
Importantly, we are happy to work with everybody and contribute to national development through the whole of government approach to industrialize Uganda and save our country from an extractive political economy by exporting value-added goods.