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New Approaches to Trade Development in Africa

Written by: African Development Bank

Article Overview: One of the new approaches that can be used to foster trade development in Africa is establishment of export processing zones (EPZs). EPZs or duty free zones are areas where domestic and foreign firms locate their production facilities for manufacture, assembly or processing of goods.

New Approaches to Trade Development in Africa

One of the new approaches that can be used to foster trade development in Africa is
establishment of export processing zones (EPZs). EPZs or duty free zones are areas
where domestic and foreign firms locate their production facilities for manufacture,
assembly or processing of goods. (Din, 1994) The advantages that EPZ creation offers
include the rapid expansion of the industrial base, stimulation of the domestic sector
through linkages with the rest of the economy, and alleviation of the problem of
unemployment in the host country. The Asian and Pacific countries have used free trade
zones as instruments of development more than any other developing nations. The
establishment of EPZs has been a huge success in Hong Kong, Singapore, China, Taiwan
and South Korea.
There are divergent views on the role of EPZs in stimulating and sustaining economic
growth. Rondinelli (1987), in his review and reassessment of EPZ as a means of
promoting growth, increasing employment, and promoting economic development in
Asia, argued that EPZs have created new employment, generated foreign exchange, expanded national revenues and increased export flows. He however added that large
EPZs might promote undesirable in-migration from rural areas and produce more
dependence on foreign-owned firms. Nevertheless he concluded that the benefits that
EPZs confer are usually more than the cost.
Heron (2002) presents an assessment of the contribution EPZs in the Caribbean in terms
of the costs and benefits associated with offering preferential treatment to export-oriented
investment, the backward linkages fostered between assembly operations and the
domestic economy, as well as the extent of technology transfer. He concludes that even
though the EPZs offer the host country undeniable benefits in terms of employment and
foreign exchange earnings, their contribution to industrial transformation is not
substantial. However, in practical terms, it seems clear that the establishment of an EPZ
would normally lead to the creation of new employment, generate foreign exchange,
increase national revenue, increase export flow and also attract foreign investment.
While, this is not without a cost, the benefits produced by EPZs are usually quite
significant.
The success of the newly industrializing countries of South-east Asia (Hong Kong,
Singapore, South Korea, and Taiwan) in developing through industrial export-led growth
has demonstrated that this is a bone fide avenue for rapid economic development, Iyoha
(2003). A pre-requisite for successful growth that is driven by the exportation of
manufactured goods is domestic industrialization and vigorous export promotion. In
addition to the production of high-quality manufactured goods, successful exportation
requires creative marketing, attractive packaging, acquisition of information on demand
conditions in foreign markets, flexibility, adaptability and zeal in penetrating foreign
markets. Africa has the potential in terms of human resources, raw materials, and access
to the requisite technology. What are needed are the will, organizational acumen and
persistence to succeed.
For several reasons especially the success of export-led growth in South East Asia, the
current international orthodoxy is in favour of export-oriented trade policy. A critical
feature of such a strategy is export promotion. The policy of export promotion is being
canvassed for many reasons including:
· the improvement of the balance of trade and balance of payments;
· a source of export-led growth;
· in order to promote capital inflows and improve the competitiveness of domestic
industries; and
· a means of encouraging the diversification of production and exports.

African Development Bank
Economic Research Working Paper Series
Enhancing Africa’s Trade: From Marginalization
to an Export-Led Approach to Development
Milton A. Iyoha
Professor, Department of Economics & Statistics
University of Benin, Nigeria
Economic Research Working Paper
No 77 (August 2005)

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Article Tags: alleviation, assembly operations, china taiwan, developing nations, divergent views, domestic economy, domestic sector, exchange earnings, export processing zones, hong kong singapore, host country, industrial transformation, national revenues, pacific countries, preferential treatment, promoting economic development, rapid expansion, reassessment, singapore china, terms of employment



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