TRALAC - Trade Law Centre

Tanzania: Are export processing zones fairing well now?

Sunday, 29 June 2008

Source: IPP Media

Tanzania aims to achieve export-led economic growth rate that will be stimulated by an increase in export of goods and services, while it explores markets at global level based on competitiveness of its products in terms of quality, prices and delivery.

Vision 2025 targets to increase the share of manufacturing sector to Gross Domestic Product (GDP) to 25 percent by 2025. This will require diversification of the economy by introducing new agricultural and manufactured products for exports.

The purposed of diversifying of the economy is to move from import substitution to export promotion based on the initiatives of export development strategy.

The shift will require institutional building of the Board of External Trade, better funding to conduct market research for exports, training of potential exporters on export procedures and empowering of entrepreneurs to participate in domestic, regional and global trade fairs or exhibitions.

There are general export incentives like the Export Credit Guarantee Schemes and duty draw back schemes. In duty draw back scheme the exporter is refunded duties and other taxes paid on inputs used to produce goods for exports.

The major strategy is, however, to attract export-oriented investments in Export Processing Zones (EPZ) and Special Economic Zones (SEZ).

Many African countries which successfully established export processing zones have benefited by penetrating AGOA market in the USA.

The products which have featured prominently in these exports are textiles, garments and other local resource based industries products.

The pioneers in establishing EPZs are South Africa, Kenya, Swaziland and Mauritius.

Despite evidence of successes recorded by our neighbours, EPZs programme in Tanzania was established several years later following the enactment of Export Processing Zones Act of 2,002.

The scheme promotes export-oriented investment within designated zones to create international competitiveness for export-led economic growth.

The programme offers a wide range of attractive fiscal, physical and procedural incentives to ensure lower cost operations and to foster smooth set up of operations.

The objectives of EPZs are to attract and promote investments for export-led industrialisation, to earn foreign exchange earnings, create jobs and skills development.

Others are to promote transfer of new technology and foster linkages of local economy with international markets. They also include promoting processing of local raw materials for export.

EPZs are administered by the Export Zone Authority established two years ago. The EPZ project was initially under National Development Corporation (NDC), but later transferred to the EPZ Authority.

Currently, there are four EPZ industrial parks. They are Millennium Business Park (Dar es Salaam), Hifadhi EPZ (Dar es Salaam), Kisongo EPZ (Arusha) and Benjamin William Mkapa Special Economic Zones (SEZ) in Dar es Salaam. Much more should have taken place by now.

The government, is nevertheless, understood to have plans underway to develop EPZ infrastructure in 13 regions of Tanzania mainland.

Each site will have approximately 2000 hectares and investors will be invited to develop satellite tours, factory buildings and warehouses for lease or own operations.

Utility services - power, water, telecommunications and other utility services will be provided. One hopes such services are free from unnecessary interruptions, and that back provisions are at hand in the event of such interruptions.

Areas that have been set aside for EPZ development include Mbegani area (Coast region), Malula area (Arusha), KIA area (Kilimanjaro), Kiyegeya area (Morogoro), Bunda - Tairo area (Mara) and Mtwara Port Area (Mtwara region).

Other planned EPZ areas are Ujiji (Kigoma), Luwawasi - Mkuzo (Ruvuma), Kilengula (Kagera), Neema area (Tanga), Usagara (Mwanza), Mererani (Manyara), Mbeya region and Lindi region.

These areas are integrated with international trade gateways such as air, sea, lake ports and border posts.

It is interesting to note that Dodoma, the capital and seat of parliamentary headquarters does not feature among these designated areas.

There are a number of incentives for investors in EPZs. They include access to export credit guarantee schemes, remission of customs duty, VAT and taxes on raw materials and goods of capital nature.

Incentives include exemption from payment of withholding tax on rent, dividends and interest for the first ten years. There is exemption from payment of corporate tax for an initial period of ten years.

Other incentives are exemption from payment of all taxes and levies imported by local government authorities for goods and services produced in EPZs for the period of ten years.

With present rhetoric of reviewing tax exemptions, everything should be done to ensure EPZs do not suffer a setback.

Goods and services in EPZs are exempted from pre-shipment inspection requirements and on site customs inspection of goods.

There is also a provision for temporary visas at the point of entry to key technical, management and training staff for a maximum of 60 days.

EPZ incentives include remission of customs duty, VAT and any other tax payable in respect of importation of one administrative vehicle, ambulances, fire fighting equipment vehicles and up to two buses.

The area hosts other incentives which include provision of on-site basic infrastructure in earmarked EPZ sites, construction of EPZ single factory units and provision of EPZ services.

Non-fiscal incentives include unconditional transferability of profits, dividends and royalties. There are lower part charges for EPZs.

Eligibility is for new investments; at least 80% of goods produced or processed should be exported. Annual export turnover should be $500,000 or more for foreign investors and $100,000 for local investors.

All said, there has been little progress in inviting investors to the EPZs since 2002 and this has been attributed to poor preparations when EPZs were started by the National Development Corporation.

To disappointment of many, warehouses which were owned by crop marketing boards, which would have been useful to investors, have not been allocated to them.

The EPZ authority has not popularized fiscal and physical incentives it offers to local and foreign investors.

For the investors in EPZs, especially in the textile sector, the procedures for processing incentives offered continue to be unncessarily lengthy.

Some investors have complained that it takes too long for power and other utilities to be installed in the EPZ cites.



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