Professional Documents
Culture Documents
FACULTY OF COMMERCE
HANYIRE LUCKMORE
REGISTRATION NUMBER: R114962F
SUPERVISOR: DR N. NKOMAZANA
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APPROVAL FORM
The undersigned certify that they have supervised the student Noel Gumbo. Dissertation entitled:
A feasibility study for the introduction of free economic zones in Zimbabwe submitted in
partial fulfilment of the requirements of the Bachelor of Commerce (Honours) degree in Banking
and Finance at Midlands State University.
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SUPERVISOR
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CHAIRPERSON
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EXTERNAL EXAMINER
....................................................
DATE
....................................................
DATE
....................................................
DATE
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RELEASE FORM
NAME OF STUDENT
HANYIRE LUCKMORE
DISSERTATION TITLE
2015
Permission is hereby granted to the Midlands
States University library to produce single
copies of this dissertation and to lend or sell
such copies for private, scholarly or scientific
research purposes only. The author does not
reserve other publication rights and neither
dissertation nor may extensive extracts from it
be printed or otherwise reproduced without
the authors written permission.
SIGNED
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PERMANENT ADRESS
17814/5 Mbizo
Kwekwe
DATE
OCTOBER 2015
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DEDICATION
To my mom and our dad and to all those who aim higher keep on trying your effort will be
rewarded.
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ABSTRACT
The rational of the study sought to do a feasibility of introducing FEZ in Zimbabwe. The research
used primary data obtained from the questionnaires that were given to corporate senior managers
and the personal interviews. Research instruments used were questionnaires that were given to
Research and Development personnel and personal interviews. The sample consisted of 10
research subjects but only 8 respondents managed to participate in the study. STATA 13 was used
to analyse both primary and secondary data and the results were presented using tables and
percentages for clear understanding. Questionnaires were tested for reliability.The literature
review was also used to provide information on the relationships of FEZ and the economy. The
study showed that the policies, systems are not investor friendly meaning there is need for a
complete panel beating which will be of great importance to the economy. The study found out
that FEZ introduction is very feasible in Zimbabwe if and only if the success factors of FEZs are
considered in the establishment process. This study recommends that restructuring and coming up
with new policies is necessary to revamp the economy through boosting exports and attracting
FDI. It is also necessary for organizations to build or uphold their operational systems as well as
equipping staff with all necessary skills to produce world class quality. Finally, it is recommended
that further research be undertaken, in order to establish the sustainability of FEZ in Zimbabwe
and in other developing countries.
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TABLE OF CONTENTS
APPROVAL FORM ................................................................................................................................... i
LIST OF FIGURES ................................................................................................................................. xii
CHAPTER ONE: INTRODUCTION ..................................................................................................... 1
1.1 Introduction ........................................................................................................................... 1
1.2 Background to the Study ....................................................................................................... 1
1.3 Problem Statement ................................................................................................................ 4
1.4 Research Objectives .............................................................................................................. 4
1.5 Research questions ................................................................................................................ 5
1.6 Assumptions .......................................................................................................................... 5
1.7 Significance of the Study ...................................................................................................... 5
1.8 Limitations ............................................................................................................................ 6
1.9 Delimitations ......................................................................................................................... 6
1.10 Definition of Terms ............................................................................................................. 6
1.11 Organization of the Study ................................................................................................... 6
CHAPTER 2: LITERATURE REVIEW ................................................................................................ 8
2.2 Theoretical literature review ................................................................................................. 8
2.2.1 Concept of FEZs ............................................................................................................. 8
2.3 Empirical literature Review ................................................................................................ 27
2.3.1 Export Development and Export .................................................................................. 28
2.2.6 Investment Promotion................................................................................................... 31
2.3.10 Adequacy of infrastructure ......................................................................................... 32
2.3.11 Economic outlook ....................................................................................................... 32
2.4 Summary ............................................................................................................................. 33
CHAPTER THREE: RESEARCH METHODOLOGY ...................................................................... 35
3.1 Introduction ......................................................................................................................... 35
3.2 Research Design .................................................................................................................. 35
3.3 Research Population ............................................................................................................ 35
3.4 Judgemental Sample ............................................................................................................ 35
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ACKNOWLEDGEMENTS
I wish to express my gratitude to those who generously helped me colour this mosaic piece with
the tiles of their knowledge, I have taken literal license; but any factual errors are my
responsibility alone. My grateful thanks go to the following:
First and notable, I would like to thank Jesus Christ, my deliverer, for giving me the opportunity
and determination to carry out and complete this study
In addition, I would like to thank Dr Nkomazana, my supervisor for allowing me to study under
him and for his guidance, assistance and intuition that made this study possible. His reviews and
comments on the drafts of this study were invaluable.
I would also want to thank Tanaka Hungwe and Simon Nyamuvurudza for the encouragements
and support during the hard times.
To all those I have omitted, your efforts and support have not gone unnoticed, I thank you very
much and may God greatly bless you. Thank you all for the sacrifices you made in making this
journey towards my academic excellence a success.
To all those who participated in the project, May God richly bless you.
To those not mentioned it will be you tomorrow.
Luckmore Hanyire
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BACOSSI
CFT
CZI
ESAP
FATF
FDI
FEZ
EPZ
EPZA
GAZ
GDP
GNP
ILO
IMF
IIP
IDC
MDC
MNCs
Multinational Corporations.
MNEs
Multinational Enterprises.
PSF
RBZ
R &D
SEZ
SME
SSA
Sub-Saharan Africa.
UNCTAD
UNIDO
UNDP
WDI
WEPZA
ZAZ
ZIA
ZIDP
ZIMPREST
ZIMSTATS
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LIST OF TABLES
Table 1.1: Maize, wheat and soya bean production trends from 1999 to 2008. ............................. 3
Table 2.1 .The evolution of terminology ...................................................................................... 10
Table 2.2 shows the whole package of incentives provided to investors. .................................... 22
Table 4.1: Response Rate for Questionnaires ............................................................................... 40
Table 4.2: Interview Response Rate ............................................................................................. 41
Table 4.3: Reliability Test Results ................................................................................................ 42
Table 4.4: Duration in the Current Position .................................................................................. 43
Table 4.5: Exports made up to the current date ............................................................................ 44
Table 4.7: Impact of FEZ on FDI ................................................................................................. 49
Table 4.8: Impact of FEZ on revenue ........................................................................................... 50
Table 4.9: Effects of FEZ on the social environment ................................................................... 55
Table 4.10: Summation of all variables ....................................................................................................... 57
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LIST OF FIGURES
Figure 2.1 Territorial and regime types of FEZs .......................................................................... 12
Figure 2.3 FEZs typological diversity based on industrial structure and evolutionary stage ....... 14
Figure 2.3FEZs typological diversity and the evolution based on locations and industrial
structure......................................................................................................................................... 15
Figure 3.1: Research Instruments Used ........................................................................................ 36
Figure 4.1: FEZ fertile grounds .................................................................................................... 45
Figure 4.2: Skills and robust systems to export quality ................................................................ 46
Figure 4.3: Visibility of firms ....................................................................................................... 47
Figure 4.4: FEZ and human development..................................................................................... 51
Figure 4.5: Employment creation ................................................................................................. 52
Figure 4.6: Capacity to accommodate zone business ................................................................... 53
Figure 4.7: Illicit dealings ............................................................................................................. 54
Figure 4.8: The Need for sound policies that encourage FEZ ...................................................... 56
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LIST OF APPENDICES
APPENDIX A: COVER LETTER ............................................................................................... 66
APPENDIX B: QUESTIONAIRRE ............................................................................................. 67
APPENDIX C: INTERVIEW GUIDE ......................................................................................... 70
APPENDIX D: MEAN AND VARIANCE OF THE DURATION ............................................. 71
APPENDIX D: RELIABILITY TEST RESULTS ....................................................................... 72
APPENDIX E: FACTOR ANALYSIS ......................................................................................... 73
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Liberalising the economy to allow foreign direct investment and competition ( UNDP Zimbabwe,
2010 and Hawkins and Ndebele, 2009)
The programme failed to sail through because of the 1991/92 and 1994/95 droughts, the dismantling of
the tariff regime and the liberalisation (opening up the economy to foreign competition). The droughts
destroyed the agricultural sector upon which the manufacturing sector depended heavily on for inputs and
foreign exchange. According to Riddell (1990) Zimbabwes manufacturing and agricultural sectors are
heavily interdependent in such a way that by 1980, agriculture accounted for 60% of the inputs used in
manufacturing while agriculture consumed 44% of the manufacturing sectors output.
After such an unexpected experience, the government was left with no option but to abandon ESAP in
1996 and adopted the Zimbabwe Programme for Economic and Social Transformation (ZIMPREST). This
was meant to overcome the existing challenges as well as addressing the ills that were conceived by ESAP.
ZIMPREST was also supported by the revised industrial policy document which mainly emphasised on
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indigenisation through the promotion of SMEs. ZIMPREST failed because of two developments which
are the birth of the opposition party Movement for Democratic Change (MDC) and the fast track land
redistribution program. The effect of this was a decline in agricultural output which in turn starved the
manufacturing sector of inputs since the two are inter dependent. Zimbabwes agricultural sector supplied
60% of the manufacturing sector inputs and that 95% of the 60% was from the manufacturing sector inputs
and that 95% of the 60% was from commercial farms which were redistributed.
After the 2002- 2005 elections, the country was isolated by the international community and the World
Bank also announced that it would not extend loans to Zimbabwe (Besada and Moyo, 2008). The
developments drastically affected the agricultural sector which starved the manufacturing sector as shown
by the table below.
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Table 1.1: Maize, wheat and soya bean production trends from 1999 to 2008.
Maize
Year
Area
Wheat
Output(t) Yield
Area
Soya bean
Output(t) Yield
Kg/ha
Area
Output(t) Yield
Kg/ha
Kg/ha
1999
1477940 1606538
1087
47438
260909
5500
52931
120685
2280
2000
1373117 1619651
1180
42551
229775
5400
60650
135417
2233
2001
1239988 1526328
1231
37269
197526
5300
64009
140793
2200
2002
1327368 604758
455
39000
195000
5000
51282
84441
1647
2003
1352368 1058786
783
40809
122427
5000
25390
41197
1623
2004
1493810 1686151
1129
70585
247048
3000
25390
85827
1731
2005
1729867 915366
529
65454
229089
3500
49572
56730
1355
2006
1712999 1484839
867
67207
241924
3600
47137
70273
1491
2007
1445800 952600
659
60000
180000
3000
69900
112300
1607
2008
1724844 435160
250
51000
132600
2600
72311
48320
670
Between the years 2006 and 2008 manufacturing sector declined by 73, 3% and GDP reduced by 11% in
2008 (ZIDP, 2012).
Other strategies employed to boost industry
In 1997 EPZs was conceived in Zimbabwe whose aim was to promote exports and employment creation
(UNDP, 2010). The EPZs was managed by the Export Processing Zone Authority, the formation of the
Zimbabwe Investment Authority through the ZIA act repealed the EPZA act, which was the legal
instrument governing the operations of the EPZA. With an employment of 37000 and $172 million worth
of investments the programmes performance was deemed unsatisfactory and issuing of licenses to
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applicants ceased in 2006 (UNDP, Ibid). The EPZ incentives which were used under the four instruments
of the finance act were the Income tax act, customs exercise act, capital gains act and the value added act.
The reasons of failure included shrinking manufacturing base by 20% each year from 2003 resulted in
high unemployment levels 1.4 million to 998 000 in 2004 (Raftopalos, 2009) caused by political
instability at that time. The government through the RBZ started support facilities which included
Productive Sector Facility (PSF) in 2004, Basic Commodities Supply Side Intervention Facility
(BACOSSI), 2007. All these were meant to boost the industry but nothing changed.
Multi-currency up to date
The government adopted the multi-currency system in 2009 which made a positive turn around on the
economy as we began seeing companies importing goods for resale. A survey by CZI (2009)
acknowledged the significance of the multi-currency regime in stimulating manufacturing sectors
performance. The sector grew by 110% in 2009 compared to the decline rate of 28% in 2007. This reduced
the rate of company closures but couldnt eliminate them and currently the de-industrialisation crisis is
spreading everywhere in the country.
1.3 Problem Statement
Due to the shrinking country production, rejection of some of the countrys products on international
markets most companies have ceased production and have been depending heavily on imports. The
country up to this date is a net importer which means the value of imports is exceeding that of exports.
This may lead us to questions, are they any ways that can change the countrys status of being a net
importer to being a net exporter and are they any other strategies that can be employed to increase the
level of exports as well as attracting FDI? This will brought us to the feasibility study for the introduction
of free economic zones in Zimbabwe.
1.4 Research Objectives
The primary objective of the study is to establish the feasibility of introducing free economic zones in
Zimbabwe. To achieve the primary objective, certain specific secondary objectives were identified.
These included:
to establish how the concept of free economic zones can be applied in third world countries like
Zimbabwe
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to establish the challenges and possible solutions to the challenges associated with free economic
zones
to identify how government regulations can be used as enablers for the implementation of FEZs
How can the concept of FEZs be applied to third world countries like Zimbabwe to revamp the
economy?
How can government regulations be used as enablers for the implementation of FEZs
What are the possible challenges associated with FEZs and what can be done to solve them?
1.6 Assumptions
There were a number of assumptions that were made in carrying out this study. These are as follows:
The findings of the research are representative of all the stakeholders in the financial sector.
The research assumes that no change will occur at the strategies being implemented by the
government and the industries up to the completion of the study
growth can be used in the modelling for hypothesis, for instance trade, growth (GNP and GDP),
technology and knowledge transfers.
1.8 Limitations
There are substantial impediments and constraints the researcher was subject to in carrying out the study
and these impacted somehow on the objectivity and dependability of the results. These constraints include
the following:
1.9 Delimitations
The research addressed to the challenges being faced by the Zimbabwean economy hence the feasibility
study of free economic zones to the country. As broad as the coverage of the topic much emphasis was
put on factors with direct impact on FEZs as well as the economy and some of the areas that include
geographical locations and the construction of zones were just summarised in the concept of free trade
zones. The study focused on commercial banks in Zimbabwe, ministry of industries and economic
development and companies from the manufacturing and technology spaces all headquartered in Harare
and the ministry of industries where the researcher was conducting the surveys.
1.10 Definition of Terms
In the course of research, the following terms were defined in order to narrow their broader universal
meanings.
Multicurrency- refers to the use of American dollar and the South African rand in Zimbabwe
Free economic zones- all sorts of free trade zones be it export processing zones, industrial free zones, tax
free zones, trade free zones, Maquiladoras, technological free zones amongst other names.
1.11 Organization of the Study
This chapter presented the topic that is the feasibility of introducing free economic zones in Zimbabwe. It
gave a brief background of FEZs and issues around the FEZs in Zimbabwe and the problem statement.
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Objectives of the study under research was also given and some questions to be answered during the
research. The scope of the study, significance and assumptions were also outlined.
Chapter two will review the theoretical and empirical evidence put forward by different authors in relation
to FEZs. The techniques used to gather data in undertaking the research will be outlined in Chapter three.
Chapter four will include the findings of the research and data is going to be presented using graphs, tables
and charts. The summary of the research, conclusions and recommendations and suggestions for future
research will be drawn in the final chapter.
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transatlantic flights to refine at Shannon (Shoesmith, 1986). The threat posed by the transatlantic jet
resulted in the airport being turned into a duty free production zone for goods with a high value added.
The plan managed to surpass all expectations with nearly 440 jobs being created in the first year. Ten
years later the zone employed an additional 4750 people giving a new life to the airport whose staff grew
from 1250 in 1960 to 2200 in 1975. Other nations seeing this, they jumped aboard and by 1970 more than
10 countries had set up FEZs. In Asia, the first zone was created in Kandla, near Bombay and in the year
1986, there were already 175 spread across countries. Since then FEZs have spread worldwide mainly in
developing countries (Martioz and Szymanski, 1996).
The world Economic Processing zone Authoritys ( WEPZ) 1997 edition of the international directory of
free zones contains information of 847 zones in 102 nations for which some are EPZ and many facilitate
both trade and export manufacturing ( Bolin, 1999). According to ILOs figures, the numbers of FEZs has
gone from 79 in 25 countries in 1975 to 3000 in 116 in 2002 ( ICFTU,2003).
2.2.1.2 Internationally used definitions
UNIDO
A FEZ is a fairly small, geographically detached area inside the host country, the tenacity of which is to
entice export-oriented businesses, by offering them exclusively favorable investment and trade conditions
as compared to the local economy of the host country. In particular, the EPZ provide for the importation
of goods to be used in the production of exports on a bonded duty free basis (UNIDO, 1980).
UNCTAD
EPZ are industrial estates which form enclaves within the national customs territory and are usually
situated near an international port and/or airport. The entire production of such zones is normally exported.
Imports of raw materials, intermediate products, equipment and machinery required for export production
are not subject to customs duty (UNCTAD, 1985: 10).
ILO (International Labor Office) /UNCTC (United Nations Centre on Transnational Corporations)
An EPZ could be defined here as a clearly delineated industrial estate which constitutes a free trade
enclave in the customs and trade regime of a country, and where foreign manufacturing firms producing
mainly for export benefit from a certain number of fiscal and financial incentives (ILO/UNCTC, 1988: 4).
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Free zone
Maquiladoras
China (1971)
OECD (1984)
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BONDED
FACTORY
EXPORT PROCESSING
ZONE
HIGH TECH
ENTERPRISE
FREE PORT
SPECIAL ECONOMIC
ZONE
ENCLAVE TYPE
SPECIAL ECONOMIC
ZONE
TERRITORIAL TYPE
OPEN TYPE
The horizontal arrows are showing the link between FEZs and other sub types while vertical arrows
show the regime type as a special case of territorial type of FEZ
Territorial have a special defined territory with infrastructure of high quality and administration
facilities staffed with better trained people than elsewhere in that country which cannot be granted
by a regime FEZ. Due to its specialization territorial avoids technical difficulty of organizing and
allocating various fiscal, monetary privileges of the FEZ regime to larger numbers of corporates.
Basically there are two sub-types of territorial FEZs depending on the linkages with domestic
economy.
The policy of customs supervision differentiate them as open and an enclave type. An open type
has no closed customs supervision which implies that it is not strictly defined or separated from the
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domestic economy than the enclave type. Example of an open type include SEZs, SIPs, Free
financial zones. The enclave type has a closed supervision carried out to ensure less or no direct
linkages with the local economy which means it is strictly defined. Examples of enclave types
include FPs, FTZs and EPZs.
Some of the zones are both enclave and open at the same time for example SEZs. This means that
they have a part which is open and the other part which is closed.
2.2.1.5 Regime type
The regime type grants benefits to companies located anywhere in the host country as long as they
meet the requirements /suit the criteria of the FEZ. This type is strictly a regime type not a zone
thus it is a special type of a territorial type. This type allows for a strong network linkage with the
local economy and gives the foreign firms to choose the optimal location for their activities. Regime
types are subdivided into bonded export oriented factory, bonded warehouse and high tech
enterprise. Territorial do not have linkages but they are fewer than in the regime type which also
implies that the regime type can coexist with and evolve from the territory type. An instance can be
that of LDCs, as the goals and roles of FEZs shifted, many of the incentives were applied to areas
outside the zones. Taiwan is one of the examples where incentives such as export benefits have
been granted to bonded factories which are not geographically restricted.
2.2.1.6 Typological classifications of territorial zones
Territorial zones can be further classified into business specialties for example trade, manufacture,
service, cross border, science based. These classes are based on the importance of the industrial
sector, the evolutionary stage and location.
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Figure 2.3 FEZs typological diversity based on industrial structure and evolutionary stage
TRADE BASED FEZ
FIRST GENERATION
SECOND GENERATION
THIRD GENERATION
Free port
Free city/state
Customs zone
BORDER
FEZ
CROSS
Transit
Zone
SIXTH GENERATION
Transshipment
Incubator
Agricultural export processing
Cross-border economic
cooperation
Free frantier
zone
zone
Research park/area
zone
Research triangle
Free agricultural zone
Technology park
Cross-National Regional
Economic &technological
Free zone
Economic Integration
development zone
Free economic zone
Special economic Zone
World Economic
Integration
Science park/Scientific
park
High-tech park
Science-based park
Science & technology park
Science-based industrial
park
Tech-development park
Source: development with other numerous sources from: 1) UNCTC Current Studies (1990):The
Role of Free Economic Zones in the USSR and Eastern Europe>>, United Nations, New York, p.
2; 23; 2) Kreye, O., Heinrich, J., Frbel, F. (1987), Export Processing Countries: Results of a New
Survey, Working Paper No. 43, International Labor Office, Geneva, p. 7, 15
Horizontal arrows show the evolution of the key types of FEZ. Vertical arrows show the relationship
of subordination of FEZ. The FEZ in square frames are sub types.
Figure 2.3FEZs typological diversity and the evolution based on locations and industrial structure
INLAND FEZ
PORT FEZ
Trade-based FEZ
Manufacture based FEZ
Comprehensive
FEZ
URBAN FEZ
SEPARATED FEZ
Comprehensive
FEZ
Service- based
FEZ
Service- based
FEZ
Growth triangle
Science- based
Trade-based
FEZ
COASTAL FEZ
INTRA-NATIONAL FEZ
FEZ
Horizontal arrows show the ties and evolutionary direction of typologies based on the location and sectoral
structure of FEZs, the vertical arrows show the typology of FEZs based on macro middle and micro
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location and the ties between the two systems based on the location and sectoral structure. At the first
glance FEZs have no common location pattern. You can find them in the coastal region or in the interior
thus urban or rural locations or in a cross border region between two or more countries. With this one can
conclude that accessibility of FEZs should be very high in order for it to perfectly link with the
international markets.
Some FEZs are based on the criteria of macro location (coastal, inland, cross border). Others can also be
based on mid-size location, micro location where we have urban and ports. FEZs can evolve from intranational to cross border FEZs and inter to cross border national REI.
2.2.1.7 Incentives of FEZs
According to Kusago and Tzannantos (2001) FEZ incentives are divided into two categories namely hard
and soft ones. Hard incentives are those that are physical (tangible/ visible) in nature for instance provision
for infrastructure and services (roads, power supply, transport facilities) that facilitate and augment
production. Soft incentives are the intangible ones, tax allowances such as generous and long term tax
holidays, free flow of currency, full repatriation of profits, flexibility in labour laws in the zone than in
the domestic markets and other special trade concessions.
2.2.1.8 Benefits of FEZs
The existence of FEZs in an economy is more beneficial to the host country and also other countries
trading in the zone. Since it will be a more robust industrial sector of some sought below are some of the
benefits to the host country and everyone in it.
Liquidity
Average wage in the zone is higher than the average wage outside the zone
Catalyst effect
Overstated foreign exchange earnings that maybe real on paper but untrue in real values
Labor and work safety issues due to lax regulation ( Mandani, 2001)
the above assertion, the hiring of new workers help increase the foreign exchange earnings of the host
country in the form of wage payments. FEZs can be preferable to immigration given the social effects
in the host country and in the country of origin of the foreign firms that accompany dislocation of
labor.
2.2.1.11 Vulnerabilities
The proliferation of FEZs has spread remarkably across the globe in these recent years such that there
are now 3000 FEZs 135 countries with profits totalling billions of dollars. In addition to boosting
economic opportunity, the incentives package provided in FEZs can result in a reduction in finance
and trade controls and enforcement, creating room for MLs and TFs. The same characteristics that
makes FEZs attractive to formal businesses also attracts abuse from illicit dealers. FEZs have
weaknesses depending on the way they have been setup and how they are being run. These weaknesses
creates opportunities to illicit dealers which will leave the domestic economy exposed to risks
emanating from the FEZ. A summary of weaknesses is provided below.
Inadequate anti money laundering and combating financing of terrorism safeguards
These begin from the policies set by the zone management or the policymakers up to the
infrastructural setups. Inadequate safeguards will undoubtedly leave the economy exposed.
Relaxing oversight by competent domestic authorities
Relaxing in a serious environment is very risky especially in the zone. Having a pilot view on
everything is not good for the zones authorities. Closer inspection is the most recommended way of
operating when in the inspection department. Taking this part for granted will pave a way for these
illicit dealers to transport illegal goods or even commit fraudulent activities and also tax evasion.
Weak procedures to inspect goods and register legal entities
This does not only allow for illicit dealers to operate at their will but also shuns foreign investors for
they will be fearing for their investments.
Lack of cooperation and coordination between customs authorities and zone management
Poor coordination creates a series of bottlenecks and red tapes in all activities of the zone, this will
hinder the production of every company located in the zone and the new entrances.
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The World Customs Organization which is the only global standard setter of free trade zones has also
developed reference tools for the development of FEZs. The FATF TBML typologies and best practice
papers published in 2008 and 2006 presented areas of continued improvement thus red flag indicators
and best practices relevant to FEZs.
The misuse of FEZs affect both jurisdictions with zones and with not. This is because FEZs connect
legal entities to the international markets. A number of zones are located in regional financial centers
linking the international trade hubs with access to global centers of finance. With the varying zones
from country to country there are high chances that an individual jurisdiction the operators, regulators
and requirements maybe different. As there are no set standard approaches within zones it can be a
global snapshot. As the customs areas are set to encourage trade and FDI, FEZs phases are subject to
unique laws and regulation.
The features set provide optimal environment for legitimate business but also do the same for illicit
dealers. The existence of vulnerabilities in systems makes it easy for ML to tape in.
Relaxed oversight and lack of transparency
Lack of oversight on all high volume containers create room for illicit dealings. MLs and TFs make
use of high volume containers because they know that the inspection of those containers is very
tedious. This calls for strict and very close inspection and transparency on all inspections.
Vulnerable types of goods
Cigarettes, alcohol and other tariff items are more vulnerable to smuggling and contraband due to the
increased revenue generated by not paying tax. The tax for such goods is very high and by evading,
the tax shield that was supposed to go to the authorities will be added to the profits. Luxury goods and
other goods most of them used in violation of IPR are also vulnerable. IPR violations are difficult to
detect and are difficult to substantiate at the time of the cargo inspection. To avoid too much
inspections, smugglers make use of repackaging, re-labelling and export the goods. This is done to cut
the links from origination. Carousel VAT and electronic items are also vulnerable to smuggling.
Electronic items constitute high volume of trade so with the high demand and supply, they are left
vulnerable. Other strategies used by the illicit dealers is redeeming tax illicitly and the higher the
volumes of the goods, the higher the refund.
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2.2.1.12 Regulation
There are a set of regulatory bodies that govern FEZs in different countries. Depending on which side
of the globe the country is, zones are governed by some of the bodies given below.
FATF
The FATF is an independent inter-governmental body that develop policies to protect the global
financial system against money laundering and terrorist financing. Recommendations given by FATF
are standard for defining regulatory measures and criminal justice that should be implemented to curb
challenges faced (Durham, 2003). These recommendations also include international cooperation and
preventive measures to be taken by stakeholders affected by these illicit dealings. Examples of such
we have financial institutions, real estate and lawyers. The introduction of FEZs to the international
community has also brought ML and TF. The favorable incentives of FEZs can result in a reduction
in finance and trade controls and enforcement thereby creating room for ML and FT. this is because
the same characteristics that makes FEZs attractive to formal businesses also attracts abuse by illicit
dealers. The FATF recommendations are regarded as the global AML and CFT standards.
Country customs board
Country customs play a very vital role in maintaining order in the zone area. They are the ones who
are responsible for searching of vessels and make sure that every documentation required to enter the
zone has been provided. They also take the standards suggested by the FATF, WEPZA and other
international bodies to practice (Mohammed and Omade, 2011).
World Bank
The World Banks role is to work hand in hand with the FATF since it is the bank of the whole world.
Its inquisitive wide network helps the FATF recommendations to be descended to the right parties at
the right time. The conventions like the Kyoto and WEPZA help customs to do their jobs efficiently
and effectively through the provision of guidelines.
2.2.1.13 Traditional concept of FEZs
Objectives
Promotion of exports
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Promotion of FDI
Policy features
Tax holidays
Development approach
Many countries have established free economic zones while some are considering forming FEZs. Two
FEZs with opposite experiences will be briefly reviewed making the comparison highlighting the
material importance of the institutional and policy environment as well as the incentives.
Dakar FEZ, Senegal
The FEZ was established in 1974 and is considered by many experts as an example of an unsuccessful
zone. Its operations began in 1976 but failed to achieve its goals in creating employment and FDI
attraction. The employment rate grew rapidly to 1200 in1986 and dropped back down to 600 in 1990.
Firms operating in the zone managed to export a meagre 4million of FCFA (US 14.7million) out of
the zone despite a stable political environment and favourable financial promotions. Its fiscal benefits
matched those of its neighbours and competitors. They included duty exemption, no tax on machinery,
tax free corporate income and dividends and unrestricted repatriation of capital and profits.
The failure if this zone was because of a series of problems. First of all, bureaucratic delays which
ended up demoralizing potential investors. The investment flows averaging 100000nand minimum
employment of 150 workers discouraged many national and foreign entrepreneurs. Due to government
21 | P a g e
mandated labour market rigidities, hiring and firing became very difficult. Considering the fact that
wages should be backed by returns, the Dakar FEZ had a different case. Their salaries and wages were
competitive with other countries like Egypt, Tunisia and China but the productivity was very low
compared to the same countries.
Factory rental space was very limited which implies that investors were required to lease and build
their own factories hence forth discouraging FDI through imposition of increased risks. Moyo (2013)
claims that costs of utilities and transportation are rather high in Senegal (ranging 25% of the cost of
the final exported goods)
Mauritius
The Mauritius FEZ is one of the most successful FEZ in Africa. Having its FEZ law being passed in
1971 which was in response to the failure of import substitution policies and the concern about ever
growing population and mono commodity export (sugar). The incentive of the FEZ included
exemption from excise and duties on productive machinery and parts , raw materials and other
productive components ; free repatriation of profits, capital, dividend from FEZ firm and also received
preferential interest rates . Initially the firms in the zone were not subject to corporate tax for 10years
and income tax on dividends for 5 years. The law was amended later and now they are paying 15%
corporate tax but there is a compensatory increase of income tax exemptions on dividends from 5 to
10 years. There are conducive hiring and firing laws and all goods produced should be exported.
Table 2.2 shows the whole package of incentives provided to investors.
Country
Year
Tax
Tariff
Other Incentive
Namibia
1995
exemptions
revised
forever.
duties,
on
customs
to
prohibit
strikes
and
training costs.
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Togo
1990
regards
mid-1996
averaged US 40c.
hindrance;
to
hiring,
to
firing
strengthen
and
labor
electricity
telecommunication
and
services;
no
Mauritius
1990
1971
controls
and duties
No labor regulations
on productive machinery
and parts,
raw
components
materials
and
tax
exemptions
on
dividends
from 5 to 10 years
Senegal
1974
Guatemala
Source: Mauritius: Alter (1991), Curimjee (1990). Namibia: world Bank (Namibia desk officer);
Namib Times, Nov 7, 1995, pg. 18. Offshore Outlook, volume 3, issue 290, March 1995.Togo: Africa
Analysis. 1990. Togos Open Door to Hong Kong, No. 91, February. Seshie, D. 1996. Togo: La
Franchise est-elle Payante? In Jeune Afrique Economies (France), no. 220, pg. 60-62.
23 | P a g e
Kenya: World Bank reports no. 13886 and 14698, and Mark Ochengs article export-processing
zones draw lukewarm investor response in the April 1991 of African Business. Senegal: Information
on Senegal EPZ was gathered from three sources: Background paper on the 1992 World Bank paper:
Export.
The FEZ is considered a success because they managed to meet their primary goals which are
employment creation, export diversification, gross and net export increase, FDI attraction and being
on the receiving end of the demonstration effect and human capital build up. In the 1970-80s FDI did
not play any vital role (Alter, 1991), but now it has become the most influential tool in development
of FEZs. 1988 statistics shows 25% being accounted by FDI of all the FEZ total investment. Today
foreign firms now control an estimate of 45% of the FEZ sector, largely concentrating in garment
production. The firms are taking advantage of the abundant educated labor. By 1976, 84 firms had
started production and in 1983, 129 firms employed 23424 workers. The number increased to 90861
workers being hired by 586 firms. By 1995 the number dropped to 481 companies with 80466 workers
which is 17.10% of the entire national labour force.
The labour market has been tight since 1980 and was estimated to be 1.6% causing salaries to increase.
These wage increases are somehow putting Mauritius FEZ at a competitive disadvantage and some
foreign firms are now moving out of the country to relocate elsewhere where there are labour costs.
An example can be the 1991 wage levels of the garment workers which was at $1.28 per hour while
in China was at $0.25 per hour. Beside the wage part, firms do not only consider that but they look
also at other factors such as political stability, policies infrastructure amongst others. The overall net
exports of the country have been increasing ever since the zones establishment which resulted in the
share of FEZ in gross exports growing steadily.
In 1986 the zone gross exports constituted 54%of total exports while in 1992 it reached 63% and
in1995, 67%. This increase resulted in the net exports to exports ratio increasing from 22% in 1985 to
40%in 1995. With the statistics above, there is an element of backward linkage of the zone to the
domestic economy. This is because the exports of domestic economy are also increasing at an
increasing rate Rhee (1990). Cuhrimjee, 1990 argues that there is extreme inter link between zone
firms and the local economy. Alder, 2003 suggest that the FEZs overall performance is not
independent of the rest of its host economy. He went on to say during 1978-82 when the economy was
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facing both internal and external difficulties, FEZ growth slowed and later recovered with the whole
economy.
The coming together or fall application of the success factors has brought success to the Mauritian
FEZ. Everything is favourable from the incentive package, educated pool of labour, stable government
and provide stream lined services. The country is continually benefiting and amongst its benefits
included the ECI arrangement (LOME) and Multi-Fibre Arrangement. Good timing upon the
establishment of the zone, an economically attractive environment and also considering non- existence
of competition are some of the factors behind its success.
2.2.2.1 Success factors and importance of FEZs
Strong government commitment and support of the government to pilot market oriented economic
reforms. They are a set of approaches that are key to the success of every FEZ, there is the gradualist
approach which put more emphasis on stabilizing the macro-environment, Decentralization which talks
about sound business environment and the administration and lastly the administration systems for
instance one stop shops.
Land reforms
There should be favourable laws governing the land reforms within the zone. Examples of favourable laws
include land leases 20-25 years to investors and making use of the land auction systems
Investment incentives and institutional autonomy
Fiscal and non-fiscal incentives, Preferential policies, Flexibility in hiring workers, Policies should be
inviting so as to encourage investments from diasporas and FDI.
FDIs and Diasporas
Skills, technology and capital are brought into the country by these parties. Technology is in the form of
technology learning, innovation, upgrading and strong links thus creating base for innovative cultures.
Benchmarks, objectives and competition in the zone by the zone firms should be at their optimal to ensure
boosted activities and full capacity utilization within the zone which will in turn help attain the main goals
of the FEZ establishment.
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Location advantages
Location plays a vital role in the success of the FEZ. The best location of FEZ should be the one which
expose the FEZ to international trade and where other countries can easily access the goods and services
being manufactured and offered in the zone.
2.2.2.3 Models of FEZs
FEZs models differentiated by the type of the leadership controlling them. These are at times called
institutional features, institutional features play a crucial role in determining the success of a FEZ. A
number of FEZs in Africa have failed because of their institutional features.
Zone Authority owned model
In this model the zone authority operates and regulates the zone
Government owned model
This is where the government has funded everything in the zone and with that they assume control of the
zone. The services and facilities offered in this type of zone are typically subsidized services and facilities.
Zone authority in collaboration with government bodies model
This model is a hybrid of some sort in the sense that there are two separate parties coming together to
build one thing. In this model, depending on the agreement of the parties power sharing varies from zone
to zone but most of them are characterized by the zone authority exerting little power.
Separate customs area model
This one is different from all other models in the sense that it is recognized by the Kyoto convention.
2.2.2.4 Theories of economic growth
Foreign direct investment is not the only catalyst to economic growth, different studies have been
done that shows that this is not the only variable that is needed in a country for economic
development, other factors like spill overs, technology, human capital and inflation have major
impacts on economic growth. Theories have been done in order to spell out other factors that
enhance economic growth and to act as a pillar for the studies above:
26 | P a g e
Prediction - Adding more capital goods to a fixed amount of labour will lead to diminishing
returns to capital.
Eventually, the rate of return may be so low that no further net capital accumulation takes
place.
Technological advancement is presumed to be exogenous i.e. lies outside the growth model. This theory
was fused by Caves (1971), in his study on foreign direct investments on economic growth when he
postulated that technological proficiency derived from investment in research and development (R&D),
are expected to be strongly correlated with diversity proficiencies.
2.3 Empirical literature Review
A number of studies on FEZs have been carried out in various countries using several methodologies to
come up with conclusions. Empirical studies in this research covers contributions by several authors in
different countries under the topic of FEZs.
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union activity hence safe guarding their position and in the end, the study shows other problems
concerning the employees such as the lack of opportunities for training and promotion, racial
discrimination, risks of industrial accidents and pollution.
Special Economic Zones (SEZ) In Developing And / Or Transition Economics: A Policy Proposal
Sehweinberger, A.G (2003), tries to analyse the main function of FEZs in the host country with respect to
taxes and his main finding was that the introduction of FEZs should be accompanied by appropriate tax
policies that will lead to government revenue. The revenue attained may be used to fund other investments
in infrastructure or other public goods.
Type of Tax Concessions for Attracting Foreign Direct Investment in Free Economic Zones.
Chang, W.N (2004), tries to measure the disposable contemporary value of free economic zones (FZEs)
which mainly do a comparison of the tax incentive effects with inflation and without inflation. He then
analysed the effects of incentives offered to the foreign investors in the FZEs. The study concludes that
imposing a lower commercial tax rate or tax holidays in the FEZ can be desirable. The study also shows
that using depreciation as a tax concession when inflation is zero, guarantees a higher net present value
to the investor rather than when using an investment tax allowance and accelerated depreciation
Impact of Special Economic Zone on Human Development and Poverty Reduction: An Indian
Experience
Abdul Raheem (2011) in his paper : Impact of SEZs on human development and poverty reduction,
examines impact of special economic zones on human development and poverty reduction in India.
The study concludes that the employment creation has thus far been the most significant channel,
through which SEZ have impacted on human development and poverty reduction in India. Indias FEZs
are manufacturing intensive not assembly intensive in terms of their operations. They mainly concentrate
on value addition hence the generation of employment is rather vast. Albeit their contribution to general
employment has been limited, their contribution to employment generation is of significance at regional
level.
However due to the inertia, their ability to engross additional labour has been diminishing. This is being
caused by the shrinking in the export demand and the only way to reverse the effect is by carrying out
heavy promotional strategies that can help attract fresh investment in the zone. The link between poverty
29 | P a g e
and employment lies in the degree to which revenue bred from employment permits labours and their
dependants to acquire goods and services necessary to meet minimum needs. Poverty reduction thus
require the formation of paying, consistent and respectable quality jobs in the labour market. There is need
for heavy promotions to FEZs so that they can act as an initiator in the development of human development
and poverty assuagement in India.
The study reviews the key literature regarding the concept of SEZ but, a vital point to be noted here is that
no comprehensive research has been undertaken as yet, for SEZs in Gujarat and Surat Special
Economic Zone. The research examines the applicability of the FEZ concept with the Surat SEZ. The
research helps in analysing that how far the concept of SEZ is relevant to the Surat SEZ by studying
various issues. The research helps in designing the policy relating to SEZs as the study examines
the various issues of the units operating in the Surat Zone viz. importance of incentives availability,
infrastructural problems, labour related issues, marketing of the products, employment, growth, margin
on sales, market share and many other factors hence providing a valuable guidance in crafting the
appropriate policy for FEZs as well as the general investment policy.
David K.Y.Chu, (1982): the costs of four special economic zones to China
This study analyses the capex (capital expenditure) of establishing SEZs in developing countries. It shows
that there are two kinds of cost combined together when the counter established SEZs for which the first
one relates to the construction of infrastructure and the second to the urban development of SEZs. It then
shows that most of the capital cost of establishing SEZs is largely the responsibility of the country. The
study concludes that the gain from establishing SEZs should not be assessed by its financial rewards, as
there are other non-monetary benefits of SEZs.
Zwena Ryal,(1997): free zones and development, study in industrial export zones the case of
Tunisian, Morris island and Algeria
This paper tries to assess the practise of some African countries in establishing industrial export
zones (IEZ) in their economies. It then went on to determine the reasons behind the success and failure
of these zones by clarifying their concept from a theoretical point of view and while doing so, the study
found that establishing IEZS by developing countries should be combined with a national strategy and a
commitment from the government. In the end, the study concludes that establishing IEZs is costly to
developing countries
30 | P a g e
because the EPZs are generally isolated from the domestic economy and the EPZ companies have
contributed little to the tax revenues. The study concludes that introducing these zones could be
extremely costly to the host country but the benefits associated with the FEZs are vast.
Saeed Khan (2008): Indias SEZ Economic performance, Social / Environmental Impacts
The paper concentrated much on various issues relating to Indias SEZs. The issues include the
background of Indian SEZ, SEZ regime, SEZ and Indian experience, Indian context, the SEZ act, the land
acquisition act role of SEZ in Indian Economy, opposition of SEZ and how it affecting India. The paper
notes that the SEZ is the need of todays economy to support Indias target of becoming developed nation.
The exports done in the period 2007-08 were Rs. 66637.682crores from SEZs. According to the Indian
Industry and Commerce Minister Kamal Nath, the FDI would be in excess of $35 billion by the end of
fiscal year 2008. The formation of SEZs provided employment to around 3.5 lac persons. Nevertheless,
SEZ policy espoused by India to revive the economy, the transformation of productive fertile land into
industrial land may craft food crises in near future. The use of the wasteland available in India (around
552692 sq.km.) for SEZ development will ensure that the farmers are not displaced from their farmland,
the development not concentrated near cities and the fertile land will continue to be used for
agricultural use.
2.3.10 Adequacy of infrastructure
For business to be successful in a country, there is need for Infrastructure, if business is successful
then investors can be motivated. High road networks, electricity, telecommunication systems, water
and warehouses are very crucial in FEZs. These will in turn attract foreign investors henceforth
FDI. The sustainable availability of the aforementioned factors is vital for a country s FEZ to be
successful, Noorbaksch, 2001). For investors to be lured, there I need for adequate infrastructure so
that they me be accommodated, currently Nigeria is in a process of setting up a FEZ and they are
investing much on Capital expenditure thus infrastructural development.
2.3.11 Economic outlook
Forthcoming Economic Outlook is very essential as it is able to define the imminent insights and
tendencies of investors to continue investing in the particular host country UNCTAD, (2002). As
investors envisage unclear and waning economy, governments should act quickly in conducting
necessary macroeconomic restructurings intended to ease up business regulations, strengthening
32 | P a g e
property rights, improving labour market flexibility thus mainly the hiring and firing part, and
increasing firms access to finance in order to retain the existing investors and attract more FDIs as
this is the most important determinant that makes them confidence of investing in the country.
Failure to do that can result in a FEZ failure like the Mauritian FEZ which was later abandoned by
investors because of unadjusted laws, regulations and policies.
Various authors who contributed in the FEZs topic were in support of FEZs as being the key to success
of developing countries while some were disagreeing to that fact. UNIDO (1980) postulated that FEZs
are an essential tool for economic growth, Wells (1990) also supported that FEZs help attract FDI as
well as creating employment hence economic growth. Abdul (2011) carried out his study assessing the
impact of FEZs on poverty reduction and human development.
However they are some authors who criticised the idea of FEZs being key to the development of third
world countries. These include Mireri (2000), Chu (1982) and Zwena (1997), they claimed that FEZs are
costly to establish in developing countries (capital costs), the conditions on labour policies sometimes do
not offer security to the labours who end up quitting jobs and they went on to stress that there are high
levels of pollution from these designated places hence making them not of any use to developing countries.
This clearly shows that there is a high level of confusion and this research seeks to eliminate that confusion
by clearly scrutinizing FEZs
2.4 Summary
This chapter concentrated on the literature surrounding economic growth in relation to FEZs
stipulating various theoretical and empirical views of researchers and researches done in different
countries. Theories in support of the literature review were stipulated and analysed. Strategies that
countries need to take to attract FDI were also looked at and the benefits and costs of FDI. The
following chapter dwells on the methodology used when the research was carried out and diverse
diagnostics to be carried out in the research.
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also it is efficient and easy to use. Overly, sampling allows greater control over reliable information since
it is a manageable technique.
However the major disadvantages are that the sample is not totally representative of the overall population
as the corporates selected may not be the only ones involved in FEZs establishment.
3.5 Data Collection Methods and Instruments
This research will be constructed making use of both primary and secondary data sources in order to come
up with a valuable and meaningful conclusions. Below is an illustration showing the link of all data
collection methods that will be employed.
Figure 3.1: Research Instruments Used
Interviews
Questionnaire
Primary
Secondary
Analysis
Conversely, the primary data collection method is very costly and it will take quite a lot of financial input
in order to fairly distribute the questionnaires, conduct interviews as well as obtain feedback from the
various respondents. With that sending questionnaires using emails will reduce costs to reasonable
amounts as well as saving the resource time.
3.5.1.1 Questionnaires
Questionnaires will be used to acquire primary data needed to in relation to the study. Normalisation of
data obtained will be enriched as the same questions will be distributed to various institutions throughout
the process. The survey will also consist of fifteen close ended question with the twelve based on a 5 point
Likert scale (5=strongly agree, 4=agree, 3=In between, 2=disagree, 1=strongly disagree) in order to avoid
intricacy in answering of questions. The questionnaire will be used as a complementary data collection
technique to personal interviews. Some questionnaires will be physically handed to the respondents while
some will be sent via online email. An aggregate of two personnel from the Research and Development
of each organization will be targeted from each Corporate. A pilot study will be conducted to the ministry
of industry and economic development as the finishing point where four questionnaires will be sent.
Questionnaires were chosen because they are inexpensive, easy to administer and covers a large number
of respondents compared to other methods like focus groups and with the use of Likert scale five pointer,
the data will simple to collect and analyse. Questionnaires allow respondents to have enough room to
respond to questions at their own spare time especially in instances where the respondents are busy to be
interviewed. Self-completion of questionnaires also guarantees privacy and confidentiality. Moreover
with close ended questions answers will be standardised and this will help in the interpretation of
responses.
However, questionnaires limit the ability of the researcher to observe non-verbal communication.
Questionnaires are also very strenuous in terms of preparation, distribution and very costly in terms of
feedback through increased transport costs.
3.5.1.2 Personal Interviews
Interviewing is a technique that is primarily used to collect first hand data and they provide the interviewer
with an understanding of the motives behind peoples attitudes, likings or behavior. They can be done on
a personal one-to-one basis or in a group. The research will undertake the personal one on one basis; two
37 | P a g e
interviews will be taken on each representative in in the sample frame and these will be mainly done to
personnel working at the finishing point organisation.
Interviews are associated with more advantages which makes them dependable, these include; their
capacity to make available instant feedback required by the interviewer, provide a better understanding of
the respondents answers through both verbal and non-verbal communication and provide room for
respondents to clarify their answers. These advantages show that interviews can be the best instrument on
collecting high quality data, Mathers et al (2015)
However interviews are very costly, time consuming and permit interviewer and interviewee bias. Some
respondents may be unwilling to provide more information in addition to their questionnaire responses.
This will however be overcome by establishing good relationships with the respondents.
3.5.1.3 Validity and Reliability
To guarantee the validity and reliability of data, the research instruments will be submitted to the
researchers supervisor for critical analysis before piloting and administration. The valuable
recommendations from the researchers supervisor as well as results obtained through pilot testing these
instruments provided scope for refining the validity as well as reliability of the research instruments.
Questionnaires were distributed to ten colleagues who had their work related learning in the various
institutions and corrections were made. Reliability test was also measured by the Cronbach alpha as well
as factor analysis, which checked constancy of the research questionnaire. Cronbach (1951) states that
rule of thumb for questionnaires to be considered reliable or acceptable has to be in the range of 0.6 <
0.8. The research also checked reliability by checking the closeness of responses attained from
questionnaires and interviews.
3.5.2 Secondary Data Collection
The secondary data sources includes published sources like textbooks, internet journals business
magazines, government publications, newspapers, Reserve Bank of Zimbabwe reports and corporate
annual reports. These sources are useful in providing important information used during the process of
designing the questionnaires for the research. Although secondary data in some cases may not give enough
detail and fail to meet the exact requirements of the research, it is less expensive to use than primary data
collection. According to Taylor (2000), the use of document reviews saves administrative time and costs
and thus time and a lot of money is saved through the use of secondary data.
38 | P a g e
However the information is not designed to meet the needs of the research and some of the information is
out dated given the drastic changes that take place in the financial sector on a daily basis and some may
be biased especially when using newspapers which seeks to attract peoples attention. There is also no
control over the procedure used for collecting, analysing and interpreting the data, thus accuracy of the
secondary data is subjective.
3.6 Data Presentation and Analysis Plan
The study will be summarized, organized and analyzed using STATA 13 statistical package. This will be
structured with the service of analytical tools like the tabular system. After doing this analysis, figures,
tables and percentages will be used as tools for presentation and analysis of data gathered. Tables will be
used as they aid relationships among data to be visualized which then facilitates comparison. Tables also
enhance comprehension as tabulated data are easier to understand and reminisce and errors and omissions
can also be easily noted.
3.7 Summary
The chapter explained the methodology used to carry out the study. The research design, the
sample
population and plan as well as instruments used in the research were also highlighted. The chapter went
further to look at the data collection methods and concluded by outlining, explaining and justifying data
presentation and analysis plan for chapter four.
The next chapter will look at a critical analysis of primary data in terms of key areas of research questions.
39 | P a g e
Questionnaires returned
99
Response rate
82.5%
40 | P a g e
The response rate is in line with Bryman and Bell (2011) who postulated that the response rate of more
than 50% is enough to justify presentation of the findings, so it is acceptable. The response rate was high
because most of the questionnaires were self-administered to bank employees in the banking halls. The
questionnaires were drawn-out to respondents who were keen to be involved in the research.
Questionnaires which were not successfully answered were as a result of other work commitment by the
respondents who then fail to answer the questionnaires
4.2.2 Interview response rate
Response rate for interviews conducted are shown in the table 4.2 below.
Table 4.2: Interview Response Rate
Scheduled interviews
10
Conducted interviews
8
Response rate
70.0%
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0.1837168
15
0.7304
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. tab averageperiod
average
period
Freq.
Percent
Cum.
1-10
10-20
20-more
42
18
39
42.42
18.18
39.39
42.42
60.61
100.00
Total
99
100.00
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exports
contribution to
economy
Freq.
Percent
Cum.
strongly agree
agree
30
69
30.30
69.70
30.30
100.00
Total
99
100.00
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.4
.2
0
Density
.6
.8
3
fertile grounds
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.2
Density
.4
.6
2
3
4
skills and robust firms of firms in Zimbabwe
46 | P a g e
30
20
10
0
Frequency
40
50
2
3
4
visibility level of firms in zone and outside zone to the market
47 | P a g e
Freq.
Percent
Cum.
strongly agree
agree
uncertain
disagree
strongly disagree
60
15
7
7
10
60.61
15.15
7.07
7.07
10.10
60.61
75.76
82.83
89.90
100.00
Total
99
100.00
48 | P a g e
Freq.
Percent
Cum.
strongly agree
agree
uncertain
disagree
strongly disagree
51
29
5
9
5
51.52
29.29
5.05
9.09
5.05
51.52
80.81
85.86
94.95
100.00
Total
99
100.00
The results show that 51.52% of the overall respondents strongly agreed to the notion that FEZ has a
significant impact on FDI as well as the other 29.29%. A total of 5.05% had doubts or were uncertain on
whether FEZ impact on FDI while 5.05% were in total disagreement supported by 9.09% who also
disagreed.
Chang (2004) carried out a study finding out whether FEZ incentives attract FDI or not. His results were
positive and a study was carried out by Moyo (2013) explaining the relationship between FDI and
economic growth. The results were positive and a model was designed showing the link between FDI and
Economic growth. A relationship can be devised:
FEZ (FDI, Exports, Technology spill overs, Infrastructural development, training) =Economic growth
4.3.7. Impact of FEZ on revenue
The respondents supported that securitisation will increase the liquidity of the bank and the results
obtained are presented below in figure 4.6. A rating was required to the provided statement.
49 | P a g e
FEZ boosting
revenues
Freq.
Percent
Cum.
strongly agree
agree
uncertain
disagree
strongly disagree
54
35
1
7
2
54.55
35.35
1.01
7.07
2.02
54.55
89.90
90.91
97.98
100.00
Total
99
100.00
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.6
.4
.2
0
Density
.8
2
3
4
impact of FEZ on human development
20
Frequency
40
60
2
3
FEZ impact on employment
20
10
0
Frequency
30
2
4
capacity of company to operate in FEZ
Frequency
kdensity capacity
normal capacity
Disagree
Uncertain
Strongly agree
Points /10
The results show that 6.5 of the whole 10 points agreed that illicit dealing come also with FEZ
introduction. 2.5 of the 10 points were uncertain while 1 point of the 10 points were disagreeing. This is
supported by the FATF which asserted that the development of FEZs will create room for illicit dealings.
4.3.11.2 Environmental pollution
FEZ establishment comes with its on cases, most of them are advantages compared to the disadvantages.
Pollution of the environment is one of the main challenges associated with FEZs. Most of the companies
operating in a FEZ are manufacturing companies hence there are emissions of toxic gases in the
atmosphere as well as toxic liquids and other materials in the environment they are operating in as well as
in the water sources. Austerity measures should be taken in order to make sure that the level of pollution
is maintained at reasonable amounts to avoid health complications and destroying of the natural
ecosystem.
Another source of ecosystem destruction can be that of the infrastructural development by companies. Net
one is building network boosters that look like trees in order to avoid disturbing the ecosystems.
54 | P a g e
The Chinese government make use of environmental regulations set to reduce environmental pollution.
Amongst the laws that has been set include Environmental protection law (EPL), Environmental Impact
Assessment Law (EIAL) and Measures for Administration of the Control of Pollution by Electronic
Information Products often referred to as China RoHS.
4.3.11.3 Effects on the Social atmosphere
As a life thing, FEZ has certain effects on the social environment. The social environment involve the
way people live together, their culture and beliefs and all other ethical issues like religion. The researcher
asked the respondents if FEZ has any effects on the social atmosphere in Zimbabwe and the findings are
given below.
Table 4.9: Effects of FEZ on the social environment
impact of FEZ on
social
environment
Freq.
Percent
Cum.
strongly agree
agree
uncertain
disagree
strongly disagree
32
25
15
14
13
32.32
25.25
15.15
14.14
13.13
32.32
57.58
72.73
86.87
100.00
Total
99
100.00
The results show that 73.53 % ( 32.32% and 25.25%) of the respondents agree that FEZ has effect on the
social atmosphere, 15.15% of the respondents were uncertain on what effect FEZ has on the social
atmosphere and 27.27% were disagreeing to the notion.
The above statistics are supported by Saeed Khan (2008) who postulated that though, SEZ policy adopted
by India to support economy in a big way, the conversion of fertile land into industrial land may
create food crises in near future. The use of the wasteland available in India (around 552692 sq.km.) for
SEZ development will ensure that the farmers are not displaced from their farmland, the development
not concentrated near cities and the fertile land will continue to be used for agricultural use.
4.3.12 The Legal and Regulatory Environment
The respondents were asked if the policies and regulations in the country are flexible enough to attract
FDI hence making FEZs successful in Zimbabwe. The results are presented below in figure 4.11.
55 | P a g e
Figure 4.8: The Need for sound policies that encourage FEZ
Density
kdensity policies
normal policies
1
.8
Density
.6
.4
.2
3
policies
56 | P a g e
Obs
Mean
exports
links
fdi
policies
gender
99
99
99
99
99
1.69697
2.111111
1.868687
3.212121
1.373737
averageper~d
fertilegro~s
capacity
employment
skills
99
99
99
99
99
visibility
culture
education
revenue
humandevel~t
99
99
99
99
99
Std. Dev.
Min
Max
.461907
1.300619
1.174964
1.372267
.4862572
1
1
1
1
1
2
5
5
5
2
1.969697
2.717172
3.141414
1.626263
2.484848
.908627
1.538886
1.317156
.8521983
1.172505
1
1
1
1
1
3
5
5
4
5
1.808081
2.656566
2.313131
1.666667
2.030303
.94412
1.415379
1.337424
.9583148
1.101525
1
1
1
1
1
5
5
5
5
5
57 | P a g e
was made on each aspect. The next chapter will discuss the summary, conclusions and give
recommendations pertaining to this study. Suggestions for future research will also be outlined.
58 | P a g e
by
the
country
in
managing
itself
and
serving
its
people.
The main objective was to assess the feasibility of introducing FEZ in Zimbabwe. The literature reviewed
that there are two classes of FEZs namely the regime type and the territorial type and also that the main
objectives of the traditional FEZ were to boost exports and attract FDI. The mostly faced challenges of
FEZs are requires much in terms of development, vulnerabilities to crime and money launderers and a
number of benefits enjoyed include reduced or no tariffs, increased liquidity, increased profitability and
growth in local corporates. An exploratory research design was employed to acquire new insights and
develop an understanding into how FEZ can be used as a strategy to revamp the economy. Judgemental
sampling was used to select the corporates that have been operational since the adoption of the multiplecurrency regime and both the management and the research and development were interviewed and given
questionnaires. In analysing and presenting data, both qualitative and quantitative techniques were used.
The findings show that FEZs are feasible in Zimbabwe at this moment in time and can help save it.
However lack of robust systems and more skilled workforce is being a challenge since most companies
are experiencing high overhead costs and at the same time suffering competition from the international
community. In this chapter the researcher is going to draw conclusions and recommendations of the study.
5.3 Conclusions
FEZs have become a key instrument of economic development policy in developing countries seeking to
gain advantages from the growing integration of the global economy. Yet, FEZs remain controversial and
often are associated with a race to the bottom because their net contribution to countries wellbeing is still
not clear (ILO, 2003; Cling, et al, 2005). Most critics point out that FEZs offer sweat - shop labour
59 | P a g e
conditions despite the significant tax and infrastructure incentives offered by developing countries seeking
to attract high - tech jobs (ILO, 2003).
Surprisingly, despite the interest in evaluating FEZs net contribution to countries wellbeing, the
scholarly literature has paid little attention to the environmental protection effects of EPZs
Based on the evidence gathered through the research study, in line with the objectives and research
questions the following conclusions can be made:
Feasibility of FEZ
The respondents showed that almost all organisations in Zimbabwe are willing to support the
establishment of FEZ hence the feasibility of introducing FEZ. The main challenges revealed by the
corporates as a limiting factor of the development of the FEZ in Zimbabwe is that the corporates do not
have skilled work force as well as robust systems that can meet the world standards and also the cost of
establishing the FEZs are very high (Ryal,1997). But however if successful, the cost of establishing the
zone can be recouped in a short space of time.
The benefits of FEZ
As characterised by their formation, FEZs were meant to boost exports, attract FDI, and create
employment amongst other benefits to the host country mostly developing countries. The respondents
agreed that this export tool has potential to increase liquidity, profitability and aid in economic growth.
Zimbabwe investment policies
The respondents agreed that the country has no policies that can foster foreign direct investment and
that stimulate exports. There is need for policy restructuring as well as making new policies that are
in line with investment and that encourage exports.
Challenges associated with FEZs
The major challenges expressed by respondents which are associated with FEZs include, vulnerabilities
from illicit dealings, environmental pollution and may deter the culture of the local.
The respondents showed that in order to reduce these dealings, there should be a well set customs
security task force that can do its job thoroughly.
The respondents argued that in order to establish a long lasting relationship with the investors the
government should ensure consistency in their policies as well as implementing other policies that
attracts FDI.
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As far as bankers and industrial l experts are concerned, the reluctance of the investors to invest in
Zimbabwe can be overcome by the governments ability to disclose the policies in official and popular
sites so that everyone even in Mongolia can see what the policies look like.
5.4 Recommendations
As noticed in other cases from different countries, FEZs can be unsuccessful or can fail to meet the set
objectives. In order for FEZs to positively impact the Zimbabwean economy and create employment as
well as boosting exports and attracting FDI, the following are recommendations hinged on the aids;
verdicts and comments from participants throughout the whole research process should be done.
Following the strides taken by the government to reduce public expenditure, policies revisiting amongst
other areas as directed by the IMF to access funding from the international organisation, here are some of
the additional recommendations that can as well assist both in a successful FEZ introduction and economic
growth as a whole.
The government should revisit their policies to ensure that there are investor friendly and if
possible design new policies that can attract foreign potential investors and there should be
consistency in their policies
There should be also political stability and improved national relationships with other countries
mainly the western countries who are leading in terms of markets.
Road networks should be up to standard amongst other infrastructural development that can be
done to attract investors from as far as Japan.
There should be effective land reform programs to ensure that there is enough available space for
the zone and also for activities like commercial farming and in turn revamping the manufacturing
sector which rely mostly on agricultural products.
There should also be fair tight laws pertaining to illicit dealings in the customs and the spear
headers of the FEZ introduction should have a huge percentage of young blood individuals who
are still working hard to be recognised. This will encourage new and fresh ideas through logical
thinking.
Heavy promotional strategies of the FEZ should be done and the processing of necessary
documents to operate in zone should be minimised by all means to avoid boredom and monotony.
61 | P a g e
The government should avoid giving a name to the zone that will portray wrong image about the
zone, the name should be enticing as well as giving hope to the firms operating in it and curiosity
to the potential investors. A suggested name by the researcher is Giant Awakening Zone(GAZ)
or Zim Asset Zone( ZAZ)
62 | P a g e
REFERRENCES
Aggarwal Aradhna (2005), Performance of Export Processing Zones: A Comparative Analysis of
India, Sri lanka and Bangladesh, Working Paper No. 155, Indian Council for Research on International
Economic Relations, New Delhi.
Confederation of Zimbabwe Industries website www.czi.co.zw accessed on 22 July 2015
Confederation of Zimbabwe Industries, manufacturing survey, 2012
Cronbach, L. J (1951), Coefficient alpha and the internal structure of tests, Psychometrika, vol.16, no.3,
pp.297- 334.
Curimjee, A. 1990. Linkages in Mauritius in R. L. Bolin (ed.) Linking the Export Processing Zone to
Local industry. The Flagstaff Institute
Durham, K. B., 2003. Absorptive Capacity and the Effects of Foreign Direct Investment and
Equity Foreign Portfolio Investment on Economic Growth, European Economic Review 48, 285306. Foreign Investment, IFC and MIGA, Washington, DC.
Haywood, Robert (2000) Free trade zones in the modern world, Flagstaff, Arizona, World Export
Processing Zone Authority, The Flagstaff Institute, www.wepza.org/article5
IMF (International Monetary Fund). 2001. International Financial Statistics: Mauritius.
Washington: International Monetary Fund.
Kane, M (2001), Current concerns in validity theory, Journal of Educational Measurement, vol.38,
pp.319-342.
Khan Saeed, (2008) Indias SEZ: Economic Performance, Social / Environmental Impacts,
retrieved electronic copy of Journal Social Sciences.
Madani ,Dorsati (1999) a review of the role and impact of export processing zone, Policy research
working paper, No 2238, Washington DC, World Bank
Mireri C., (2000) The Impact Of Export Processing Zone Development On Employment Creation In
Kenya. Singapore Journal OfTropical Geography, Vol.21 No.2, Pp 149
63 | P a g e
Tekere, M (2000) Export Development and Export led growth strategies: Export processing zones and the
strengthening of human sustainable development (SHD), ICTSD Global dialogues-Africa, Windhoek
Tzannatos, Z. and T. Kusago. 1997. Export Processing Zones: A Review in Need of Update. Draft 1 of
paper presented at the World Bank/Government of Mauritius Conference,
UNCTAD (United Nations Conference on Trade and Development). 2002. Investment Policy
Review: The United Republic of Tanzania. Geneva: United Nations.
UNDP (United Nations Development Program), Zimbabwe manufacturing industry, Economic recovery
and Poverty reduction (2010)
UNIDO. 1988. Export Processing Zones in Transition: the Case of the Republic of Korea,PPD 84. Vienna.
United Nations Conference on Trade and Development (UNCTAD). 2001. World Investment
Report. Promoting Linkages. New York and Geneva: United Nations.
University of Mauritius, June 26, 1997.
Wei, S.J. (2000). How Taxing is Corruption on International Investors. Review of Economics
Wells Jr, L and A Wint (1990): Marketing a Country: Promotion as a Tool for Attracting
World Export Processing Zone Association. 1996. International directory of Export
Zimbabwe Industrial Development Policy 2011-2015(2012) Ministry of industry and commerce
65 | P a g e
APPENDICES
APPENDIX A: COVER LETTER
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APPENDIX B: QUESTIONAIRRE
There are 15 questions in this survey
Section A: Demographics
In this section you are asked some biographical questions. The following information is important for
analysing the information gathered from this questionnaire. Please choose information that represents you
the most.
1. My gender
Please choose only one of the following: MALE
FEMALE
OTHER
2. My age group
Please choose all that apply:
1960-70
1970-80
1990-95
High school
Diploma
10-20
20-More
In answering the questions below you are kindly asked to use the scale provided where possible
1
Strongly Agree
Agree
Uncertain
Disagree
Strongly
Disagree
1. After the introduction of the multicurrency regime, have you ever exported any of your products
67 | P a g e
2.
3. Companies have the capacity to operate in the FEZ and meet both local and foreign demand
1
6.
7.
11. There is greater visibility to targeted markets for firms operating in zone than outside
1
12. Your organisation has highly skilled staff and robust systems that can match with the export standards
13. Your organisations revenues will increase when operating in FEZ
14. Existence of FEZs will not affect the cultural part of the Zimbabwean people as well as not exposing
Zimbabwe to new crime
68 | P a g e
69 | P a g e
..
L.J. Hanyire
October, 2015
70 | P a g e
Exogenous variables
Observed:
averageperiod
Coef.
Number of obs
OIM
Std. Err.
mean(averageperiod)
1.969697
.0908581
var(averageperiod)
.8172635
.1161608
z
21.68
99
P>|z|
0.000
1.791618
2.147775
.618554
1.079808
71 | P a g e
Item
exports
links
fdi
policies
gender
averageper~d
fertilegro~s
capacity
employment
skills
visibility
culture
education
revenue
humandevel~t
Test scale
Obs
99
99
84
84
99
99
99
99
84
84
84
84
84
84
84
Sign
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
item-test
correlation
0.4689
0.6638
0.5636
0.5546
0.3332
0.1874
0.5504
0.5063
0.5331
0.4449
0.3643
0.5234
0.5189
0.4014
0.4380
item-rest
correlation
0.4047
0.5322
0.4478
0.4068
0.2699
0.0376
0.3460
0.3358
0.4650
0.3164
0.2666
0.3656
0.3670
0.3085
0.3207
average
interitem
covariance
alpha
.1968147
.1583175
.1738202
.1700859
.2036423
.2075521
.1729376
.1792354
.1874408
.1848762
.1946186
.173122
.1742612
.1925011
.1866814
0.7180
0.6883
0.7041
0.7077
0.7265
0.7396
0.7213
0.7193
0.7116
0.7182
0.7231
0.7133
0.7129
0.7202
0.7179
.1837168
0.7304
72 | P a g e
Number of obs
=
Retained factors =
Number of params =
84
10
105
Factor
Eigenvalue
Difference
Proportion
Cumulative
Factor1
Factor2
Factor3
Factor4
Factor5
Factor6
Factor7
Factor8
Factor9
Factor10
Factor11
Factor12
Factor13
Factor14
Factor15
2.93097
1.60600
1.21891
1.08255
0.54582
0.36102
0.30775
0.10733
0.09524
0.02184
-0.14988
-0.18956
-0.24878
-0.26210
-0.30869
1.32497
0.38709
0.13636
0.53673
0.18480
0.05327
0.20042
0.01209
0.07339
0.17172
0.03969
0.05921
0.01332
0.04659
.
0.4117
0.2256
0.1712
0.1521
0.0767
0.0507
0.0432
0.0151
0.0134
0.0031
-0.0211
-0.0266
-0.0349
-0.0368
-0.0434
0.4117
0.6374
0.8086
0.9607
1.0373
1.0881
1.1313
1.1464
1.1597
1.1628
1.1418
1.1151
1.0802
1.0434
1.0000
Variable
Factor1
Factor2
Factor3
Factor4
Factor5
Factor6
Factor7
Factor8
Factor9
Factor10
exports
links
fdi
policies
gender
averageper~d
fertilegro~s
capacity
employment
skills
visibility
culture
education
revenue
humandevel~t
0.4868
0.6301
0.5675
0.4721
0.2920
0.1231
0.4085
0.4165
0.5619
0.4154
0.3119
0.4274
0.4325
0.4421
0.4009
-0.4412
0.0033
0.0589
-0.3565
0.0923
0.2134
-0.1674
-0.6390
0.2347
-0.1013
0.5041
-0.1093
0.1976
0.6268
0.1643
0.0401
0.2268
-0.1454
0.4312
-0.4586
0.4241
-0.3797
-0.1808
-0.0554
-0.1630
0.2337
0.5074
-0.1460
-0.0996
-0.1373
0.1576
-0.3234
-0.4164
0.0525
-0.3179
-0.1514
0.1515
-0.1609
-0.0639
0.6449
0.2216
0.0478
-0.0636
0.0413
0.3564
0.1906
0.0276
-0.0803
-0.1745
0.1452
0.1437
0.1822
-0.1626
0.1082
0.1471
-0.1757
0.1779
-0.3458
0.2073
-0.3348
0.0720
-0.1322
-0.2493
0.0695
0.2564
0.2424
-0.2137
0.1847
0.1939
0.0068
0.0565
-0.1458
-0.0421
-0.0179
0.0538
-0.1949
-0.0183
-0.0681
-0.0663
-0.0109
0.2498
0.3064
0.1377
-0.0847
0.0425
0.1714
0.0149
0.1085
-0.1242
-0.1388
-0.1734
-0.0765
0.0405
0.1491
0.1487
-0.0666
0.0010
-0.0451
0.0024
0.0586
-0.0040
0.1016
-0.0629
-0.0342
-0.0077
0.0387
-0.1084
-0.0161
0.0377
0.0363
0.0627
0.0345
0.0340
-0.1637
-0.0877
-0.0655
0.0718
0.0430
0.1482
0.0706
0.0275
0.0014
0.0622
0.0037
0.0169
0.0186
-0.0022
0.0040
-0.0576
0.0060
0.0661
-0.0437
-0.0811
-0.0068
0.0167
Uniqueness
0.4301
0.4108
0.4010
0.3981
0.4843
0.5860
0.4641
0.2769
0.5354
0.3400
0.4728
0.4752
0.6030
0.3181
0.5268
73 | P a g e