Free zones in age of trade for development

The establishment and development of free zones in Africa, as in the rest of the world, is linked to the increasing acceptance of globalisation and neo-liberal economic polices in order for countries on the continent to become internationally competitive by moving towards export-led industrialisation and growth. 

Free zones, also known as export processing zones, are an economic tool for the transformation of the structure of industry to developmental competitiveness by focusing on export diversity, increasing a country’s share of global export trade, creating backward, forward and demand linkages, and increasing the depth of the economy.

In 1986, Uganda had a serious shortage of basic and essential goods such as soap, sugar and margarine, among others. The government focused its industrial policy largely on import substitution, and this paid off. 
Uganda is currently self-sufficient in nearly all essential commodities. 

During the time we were developing capacity, other countries in the region were equally developing capacity in more or less the same industries. This has resulted in a situation where we now produce similar or homogenous goods.

Free zones are a signal of a country’s departure from the predominantly import substitution strategy towards an external strategy to attract investment, both domestic direct investment and foreign direct investment, to create an export-oriented economy; this is a suitable strategy to find Uganda’s niche in the global market.

A common characteristic of free zones is the provision of special incentives to attract capital for investment in export-oriented production. 

These incentives include duty free import of production inputs, exemption from internal taxes applicable on exportation of factory outputs, and purpose-built industrial facilities in strategic locations to aid seamless export trade. 

These incentives are intended to attract investment in a bid to industrialise the economy and create backward, forward and demand linkages to what is produced by the Ugandan population and process it at an industrial scale for export.

This is one way of sending liquidity to the economically active population, especially those involved in commercial agriculture (agro-industrialisation), thereby increasing household incomes and creating jobs. 

This is arguably the fastest route to middle income status as envisaged in the Vision 2040.
Competition in the global market is mainly on the price of the product and the quality of the product. 

By government specially incentivising production for export, it is dealing with the price side of competitiveness to enable free zones firms and enterprises increase their production, export more and strengthen their backward linkage to the population.

 This naturally leads to growth, employment and equitable distribution of economic gains, hence, the overall prosperity of the Country.

It is quite evident that countries that are more integrated into global supply chains tend to be more prosperous and many nations have taken deliberate actions in this endeavour.
 For instance, in 2003, India’s share of global export trade was 0.72percent.

The country developed and implemented a five-year export-oriented investment strategy and was able to increase its share of global export trade from 0.72percent in 2003 to 1.64 percent in 2008, creating 14 million jobs in the value chain of manufacturing and processing for export. The story of China, Korea and the greater South -East Asia is even more succinct.

In Africa, as the continent moves towards the Continental Free Trade Area, countries like Ghana, Nigeria, Kenya, Tanzania and Egypt among others are accelerating their readiness to participate and benefit from continental free trade through investment and expansion of their free zones /export processing zones.

Free zones expansion will enable the economically active segment of the 42 million population to produce and export to the estimated 1.4billion people of the African market and the 7.9 billion people of the world market, thereby increasing our share of global export trade through improved competitiveness.

Currently, there are 24 licensed free zones in Uganda with 27 operators. These have made capital investments of more than $393 million in the last five years. They have also created more than 8,000 direct jobs and registered $1.25billion in exports in FY2020/2021.

The writer is the managing  director at Uganda Free Zones Authority