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Tema to Tangier: Policy vs Practice
The Port of Tema handles 80 percent of Tema’s annual container volume.

 

In 1995, both Ghana and Morocco introduced programs to develop free zones (FZ), also called special economic zones (SEZ), as a part of their industrial strategies. Nearly twenty-five years later, Morocco’s industrial success has become a model for other emerging economies, whereas Ghana’s efforts have produced unremarkable results.

Ghana embraced the free-zone model to bolster its economic performance in the mid-nineties. The Ghana Free Zone Programme (FZP), introduced with the purpose of making Ghana a “Gateway to West Africa”, was designed to promote the processing and manufacturing of goods. Located along the coast of the Gulf of Guinea with two seaports, Ghana is strategically placed to serve the landlocked Sahel countries and serve up to 300 million people in the ECOWAS market.

Ghana’s FZP offers a range of incentives, including tax holidays (ten years) and tax exemptions (withholding, income, and direct and indirect import taxes and levies), as well as relief from double taxation. The nature of the program is unique because, unlike many others, it uses both an enclave and single-factory approach, which earned it “one of the best designed, most flexible, and most innovative” FZPs in Africa, according to the World Bank.

Among many development projects, the Tema Export Processing Zone (EPZ), the 500-hectare multipurpose industrial park east of Accra, is the country’s only well-functioning free zone enclave. Located in the heart of Ghana’s industrial city, Tema hosts various companies in cocoa processing, prefabricated housing materials, and plastic household products. The enclave’s proximity to the largest port terminal and quality road links makes it an ideal location. Yet, after decades in operation, the Tema EPZ, like Ghana’s FZPs, has yet to develop world-class status or demonstrate exponential growth in promoting economic growth.

 

Tanger Med
An aerial view of Tanger Med Port Logistics Free Zone, a cargo port on the Strait of Gibraltar, 40 km east of Tangier, Morocco. (Photo courtesy of Wikipedia Commons)

 

The program has no doubt contributed to the Ghanaian economy, but it hasn’t lived up to its regional aspirations.

 

In 2017, up to US$172 million capital was invested in Ghana’s FZP. In the same year, Ghana’s FZP accounted for nearly 30,000 in employment, and yielded a total production value of US$1.3 billion, some 2.5 percent of GDP. Exports from the zones contributed some US$1.5 billion, an estimated 2.9 percent of the country’s GDP. The program has no doubt contributed to the Ghanaian economy, but it hasn’t lived up to its regional aspirations.

Morocco introduced legislation governing special economic zones (SEZ) in the same year Ghana launched its FZP. Morocco’s program made the zones exempt from customs regulations and foreign trade and exchange control restrictions, and provided a range of fiscal incentives in line with international best practices.

Morocco has a number of free zones across the country, but the Tanger Med Zones (TMZ), established in 2003, is often viewed as the jewel in its crown of SEZ success. Occupying 3,000 hectares, TMZ comprises a number of individual zones, including Tanger Med Port Logistics Free Zone, Tanger Free Zone, Tanger Automotive City, Renault Tanger Med, Tetouan Shore and Tetouan Park, and the Findeq Commercial Free Zone. The growth of the TMZ has been supported by the rapid development of the port to world-class standards as well as a complementary strategic infrastructure network that includes a large-scale container terminal, and high-quality roads and rail links to the rest of the country.

 

The success of Tanger Med Zones can be attributed to five pillars, one of which is clear political leadership.

 

Thus far, TMZ has attracted 750 companies, and created 65,000 direct jobs and an additional 30,000 indirect jobs through Renault Tanger Med alone. In 2016, the zone generated nearly US$6 billion, 25 percent of Morocco’s total exports. Since its inception, the zone has attracted US$3.8 billion worth of investments, totaling 8 percent of Morocco’s FDI inflows since 2003, with the majority of that investment through Renault’s establishment of its Melloussa factory in 2012. The ability of TMZ to secure a long-term contract with Renault has had a significant impact on the success of not only the zone but also the national economy and the country’s image as a global player in the automotive industry.

 

 

By 2018, TMZ was processing 3.5 million 20-foot equivalent units (TEU) of cargo capacity, whereas Tema was only processing 836,000. Both Ghana and Morocco introduced policies that conformed to international best practice on free zones in 1995, so why is Tema not Tangier?

In 2017, a comparative study of special economic zones by the Organisation of Islamic Cooperation provided an interesting analysis as to why TMZ has been so successful. According to the study, its success can be attributed to five pillars: one, clear political leadership; two, infrastructure investment; three, one-stop shop and the reduction of red tape for investors; four, market access, through its geographical location and strategic free trade agreements with the European Union and the United States; and five, a trained labor force with priority for technical skills geared to the specific needs of the various industries. In addition to these pillars, TMZ was able to benefit from a favorable macroeconomic enabling environment

The success of TMZ serves to highlight Tema’s inability, so far, to meet the criteria articulated by the Organisation of Islamic Cooperation in its assessment of the Moroccan port. Though both Tema EPZ and TMZ fall under the broad category of free zones, TMZ shows the modern trend of moving away from a single export processing zone toward a more multi-sectoral development approach.

In addition to differences in their policy thrust, Ghana faces a number of constraints to the successful implementation of its free zone program. The level of infrastructure to support the Tema EPZ is severely limited and part of the country’s larger infrastructure challenge. Ghana has experienced a prolonged energy crisis that has led to high energy tariffs and frequent power cuts, costing the nation an average of US$2.1 million in lost production daily. Even within the free zone, land rights and ownership remain an issue that has deterred investors and strained the development of industrial enclaves. Thus far, Ghana has been unable to create a competitive advantage, and many of the goods produced in Ghana face intense competition from less expensive imports. In addition to the more practical challenges of running a functional free zone program, there is little data on the specific EPZs’ operations, which makes it difficult to monitor and assess performance, and to present an updated source of information for potential investors.

 

“Investors are attracted by the integrity of government.” — Ngiam Tong Dow

 

As for the clear politics, Ghana’s FZPs have not always had the commitment of the highest level of political authority. As of late, things may be changing. The recent refocus on industrialization through the One District One Factory policy, which aims to generate some 350,000 jobs, for instance, presents a window of opportunity for Ghana to revamp its political will, and commitment, to ensuring the success of the FZPs as part of its industrialization efforts. Designating the Western region’s industrial park, The Westpark, to foreign investors for development and operation is likely an indication of more interest in this regard.

Similarly, the growing national consensus around the importance of technical and vocational education and training (TVET) may present opportunities for building a more trained and technically proficient labor force to serve the needs of FZPs.

Most importantly, as the renowned Singaporean top civil servant Ngiam Tong Dow noted, “Investors are attracted by the integrity of government.” Endemic corruption in Ghana at the state and private sector levels needs to be addressed. In addition, the cumbersome nature of state bureaucracies requires a major overhaul to allow for more efficient processes and procedures. Until addressed, the levels of investment needed to fill its enclaves and factories are unlikely to meet expectations.

Though initially lauded as an innovative policy, the Ghana experience shows that you need more than a sound plan to create large-scale change in the economic makeup of the economy. As seen in the Moroccan case, success is much more closely aligned with a coordinated effort to create a conducive environment that attracts and grows businesses, addressing the fundamentals of infrastructure, political leadership, and long-term strategy. With a solid implementation strategy, Ghana can narrow the gap between policy and practice, and clear the path from Tema to Tangier.

 

Marie-Noelle Nwokolo is a researcher at the Brenthurst Foundation. She writes in her capacity as an enthusiast and citizen of Ghana, a place she hopes to help create change for a better future.

Nchimunya Hamukoma is an Econonomist & Policy Strategist based in Johannesburg. She is passionate about African infrastructure investment and urban development and has worked in North, Southern and West Africa.

 

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Sep 21, 2020