Indeed, one key characteristic of any developed economy is that its service sector is more productive than its manufacturing sector, Zambia is decidedly still a developing economy. The pressure has been to increase activities in the manufacturing sector, which calls for rapid improvement in infrastructure. Because the development of such facilities can not easily be achieved through a single initiative, the Zambian government has among other initiatives sanctioned the establishment of multi facility economic zones. This is quite commendable.
I guess this idea gained momentum after officials from the ministry of commerce and industry visited China and saw how well china’s special economic zones had been performing.
Out of curiosity, I did my own online research on special economic zones which I will share with you in a little while.
Special economic zones (SEZ) are not a new phenomenon, India was the first country in Asia to recognize the effectiveness of export processing zone (EFZ) model in promoting exports and in April 2000, India announced the special economic zones (SEZ) policy.
In comparison, I found out that, there are numerous variations between china’s special economic zone model and that of Zambia. China has five very large zones strategically located near sea ports in the south east of the country, where as the Zambian government has so far declared two multi facility economic zones namely Chambishi multi facility economic zone and Lusaka south multi facility economic zone, and, while business incentives differ from zone to zone in China, the following standard incentives have been put in place to attract investors in the multi facility economic zones in Zambia.
Exemption from tax on dividends for five (5) years from first of declaration.
Corporate tax at zero percent for the first five (5) years from the first year profits are made;
Zero percent tax rate on dividends of companies operating under the MFEZ/Priority sector for a period of five years from the year of first declaration of dividends;
Zero percent on profits made by companies operating in the MFEZ/Priority sector for a period of five years from the first year profits are made. From 6 to 8 years only 50 percent of the profits should be taxed and for years 9 and 10, 75 percent of profits should be taxed.
Zero percent import duty rate on raw materials, capital goods, machinery including trucks and specialized motor vehicles for five years for enterprises operating in MFEZ; and
Deferment of VAT on machinery and equipment including trucks and specialized motor vehicles imported for investment in the MFEZ/priority sector.
But the main deference I found, concerns land development, which is where this author anticipates a lot of criticism. In china, the state bought the land and built the infrastructure after which private companies in the export trade moved in to set up their industrial units. In Zambia the government has acquired sites and handed them over to the private sector to develop the required facilities. A similar model used by India.
In India, there was a rush to acquire property in the special economic zones but the sharp hike in the value of these sites after their development left the original owners feeling cheated and led to concerns that businesses were buying land in special economic zones to make profit on real estate rather than on manufacturing and exporting.
The question that lingers on my mind is this, would these multi facility economic zones satisfy the investment/revenue criteria to compensate for the public money lost through the tax breaks would be investors would receive?
Zambia has matured into a democracy with full freedom of expression. The MMD government seems to be receptive to criticism. But frankly, the declarations of multi facility zones should include a cap of restrictions to address the fears of large scale displacement of local people and prevent businesses from developing in economic zones for profit on real estate alone rather than manufacturing and export.
A rapid advance in information and communication technology is helping to create new business models in the world today. Manufacturing units are becoming dispersed, while functions such as planning, control and monitoring are being networked. Business process outsourcing is becoming the order of the day. Even research and development is being farmed out to take advantage of cost serving. There is a well known saying that, “men have learned to shoot without missing and birds have learned to fly without perching their wings.” Therefore, any country must take note of this paradigm shift in manufacturing before starting any schemes to develop industrial parks or multi facility economic zones.
About the Author:
Fixed Asset Consultant at Prosperity Agencies Limited with over 10 years practical experience in physical verification, bar-coding of assets and fixed asset software implementation +260 211 239859
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