JULY/AUGUST 1996 · VOLUME 17 · NUMBERS 7 & 8
P O W E R A N D P O V E R T Y I N A F R I C A
JULY/AUGUST 1996 · VOLUME 17 · NUMBERS 7 & 8
P O W E R A N D P O V E R T Y I N A F R I C A
NAIROBI, KENYA -- History is repeating itself in Africa, as a mixture of both
tragedy and farce.
Having abandoned efforts to build economies designed to serve local needs as well as attempts to develop meaningful intra-continental economic linkages, impoverished African countries are now desperately seeking foreign investment and export earnings. With little to offer outside of the resource sector, African nations from Tunisia in the north to Zimbabwe in the south have embraced export processing zones (EPZs) as a device to attract foreign investment.
Following the advice of international aid agencies including the World Bank and the United Nations Conference on Trade and Development (UNCTAD), these countries hope EPZs -- enclaves providing special incentives to exporting businesses -- will enable them to emulate the success of Asian nations which achieved rapid economic growth significantly through an export-led strategy.
But there is little evidence that African nations are aware of the special circumstances which made possible the success of the Asian Tigers (Taiwan, South Korea, Hong Kong and Singapore, with Malaysia and Thailand now poised to join the pack).
Nor is there any apparent awareness of the general failure of EPZs to spark sustained growth in Latin America, the Caribbean and in Asian countries such as the Philippines and Sri Lanka. The African countries appear equally oblivious to the widespread labor rights violations which have characterized EPZ activity across the globe.
Caution and reflection have been thrown to the wind as countries rush to jump on the EPZ bandwagon. Even Burundi, before it recently devolved one step closer to complete chaos and national breakdown, was eager to develop an EPZ program, according to an UNCTAD official in Addis Ababa, Ethiopia. That was too much even for an EPZ proponent such as this official to take, however; he urged the country to concentrate on ensuring political stability as a prerequisite to attracting foreign investors to EPZs or any undertaking in the country.
Low wages, lower taxes
The logic of EPZs, also known as free trade zones and the equivalent of zones for what are called maquiladoras in Latin America, is to attract export-oriented manufacturing investment by setting aside a physical area where investors will be given a range of incentives. These include benefits such as tax breaks, waivers of industry regulations, exemptions from import and export duties, suspension of rules requiring foreign investors to make investments in conjunction with local partners, strict guarantees against expropriation, assurances of physical security and access to efficient communications and transportation networks.
Well over a dozen African countries now offer most or all of these regulatory waivers and exemptions. And as they strive to attract foreign investors to EPZs, African countries are also offering them a full panoply of tax exemptions:
In the vast majority of the African countries now infatuated with the concept, EPZs are only in their infancy. Most countries have only a few EPZ sites developed, if that, and typically very few investors.
As important as tax exemptions may be, however, and while basic infrastructure networks are a prerequisite to foreign investors considering a site, in practice one of the chief attractions of EPZs is a cheap, brutalized and controlled workforce.
EPZ investors tend to be smaller concerns in labor-intensive industries, especially garments. Increasingly, they are Asian investors on the run from escalating wages in their home countries. With labor costs a high proportion of production expenses, a few pennies an hour difference in wages matters to these companies' managers.
Wages in EPZs are almost always rock bottom, and conditions are typically, though not always, oppressive. EPZ workers -- overwhelmingly women -- commonly work in unsafe, dirty factories, and are forced to work at high speeds with supervisors who abuse them. Workers in Chinese and Thai factories in EPZs or their local equivalent have perished in major industrial fires [see "China's Toy Industry Tinderbox," Multinational Monitor, September 1994]. In El Salvador, Haiti and Guatemala, women workers report being beaten, sexually harassed and cursed at by supervisors [see "The U.S.-Haiti Connection: Rich Companies, Poor Workers," Multinational Monitor, April 1996; "Zones of Exploitation: Korean Investment in Guatemala, Multinational Monitor, December 1992].
In country after country, from Sri Lanka to El Salvador to the Philippines, workers who have tried to organize to improve conditions in EPZs have met with brutal repression -- firings, jailings, police attacks, assassination by death squad [see "Organizing and Repression," Multinational Monitor, June 1995; "Busting Labor in Sri Lanka," Multinational Monitor, January/February 1995; "Repression to Cooptation: Challenges for Women Workers in Southeast Asia," Multinational Monitor, November 1993]. In a March 1996 report, the International Confederation of Free Trade Unions concludes, "Anti-union repression is an integral part of the export processing zone concept. Potential investors see the absence of trade unions as a major advantage of the zones, and their preference for women workers is a deliberate part of their anti-union policy."
Examining the Tigers
It is not the disturbing record of labor repression that has led to the EPZ fad sweeping the continent. It is the desire to imitate some of the magic that enabled the Asian Tigers to transform themselves from very poor to relatively well off countries in a manner of decades.
The World Bank and neoliberal theorists take from the Asian experience a single lesson: while inward-oriented development fails, export-oriented economies succeed. African nations have now bought this interpretation.
But those who have examined the Asian Tigers' experience carefully -- commentators such as Walden Bello and Alice Amsden -- have convincingly shown that the Tigers succeeded for a range of reasons which EPZ promoters such as the World Bank ignore.
Part of the Tigers' success can be traced to unique historical circumstances: the Tigers began their export drive at a time when the United States economy was growing rapidly, and when hot and cold war battlefields in Asia made the United States a huge regional consumer. The Tigers also began their export push at a time when other Third World nations were focusing on producing for domestic markets, meaning the Tigers did not face the ruinous competition that awaits those who now undertake low-wage, export-oriented strategies.
More generally, the Tigers' achievements followed from critical policy choices that are antithetical to World Bank economic orthodoxy. First, major land reforms preceded the industrialization of the large Tigers, Taiwan and South Korea, as well as Japan. Land reforms helped jumpstart the domestic market by creating a significant market of rural consumers for both agricultural inputs and some consumer goods; reduced the pressure on the rural poor to migrate to the cities by giving them a base to support themselves; strengthened the bargaining position of factory workers for whom the option of returning to the countryside became more viable; and created the basis for relatively economically egalitarian societies. Second, governments in the Tiger countries intervened heavily in the economy, protecting and subsidizing local enterprises in a variety of ways.
In the absence of these historical happenstances and decisive policy decisions, there is strong reasons to believe the Tigers' export-led strategies would have failed.
For skeptics who raise doubts about the likely success of the African EPZ strategy, however, proponents have a single-word answer: Mauritius.
The Mauritius miracle
The small island-nation of Mauritius, located far off of Africa's southeast coast, to the east of Madagascar in the Indian Ocean, has successfully relied on EPZs to fuel its development since 1970. The country has turned the entire island into an EPZ, offering EPZ status and benefits to exporters wherever they locate.
According to a July 1995 UNCTAD report, per capita income in Mauritius has risen by approximately 500 percent in the last 25 years, from $600 to $3,000; EPZs employ nearly 90,000 workers, one third of the country's workforce; unemployment has fallen from 20 percent to almost nil; and EPZs have successfully enabled Mauritius to diversify away from sugar exports, which accounted for more than 90 percent of the country's export earnings in 1971 but have now been surpassed by EPZ revenue.
"The credit arguably goes to the progressive contribution of the export processing zone for the elevation of Mauritius from the ranks of low income to middle income economies in a span of less than 20 years, in sharp contrast with regressive welfare loss in most African countries during the same period," concludes the UNCTAD report.
Mauritius' EPZ sector grew rapidly by producing or assembling the normal set of labor-intensive goods -- apparel (accounting for 80 percent of the jobs created by foreign EPZ investors), watches, jewellery. But as wages have risen, the country has lost its wage competitiveness in low-end textile and garment manufacturing to countries such as China, Bangladesh, Vietnam and Madagascar, according to the UNCTAD report. Since 1993, Mauritius has adopted an explicit policy of promoting more technologically advanced production in EPZs; whether initially promising results ultimately prove successful remains to be seen.
Foreign investors in Mauritius EPZs come from across the globe, but the large plurality -- 30 percent -- are Hong Kong-based.
Nearly three-quarters of the exports from Mauritius are shipped to the European Union; most of the rest go to the United States.
As successful as the Mauritius EPZ experience has been, it, like the Asian Tigers, has benefitted from unique factors, and is unlikely to be replicated in Africa, argues Dr. Godfrey Kanyenze, chief economist for the Zimbabwe Confederation of Trade Unions. As a country with strong cultural ties to Hong Kong, Mauritius was uniquely well positioned to attract Hong Kong investment, Kanyenze explains. Mauritius also benefitted from Hong Kong investors' nervousness about staying in Hong Kong once China and Britain agreed to transfer Hong Kong to Chinese control in 1997.
Maybe even more importantly, foreign investors used Mauritius as a platform from which trade rules could be manipulated. Investors took advantage of Mauritius' membership in the Lomé Convention, a special trading arrangement which gives former European colonies preferential access to the European market. The country also enabled investors from Hong Kong and other Asian Tigers to place "Made in Mauritius" labels in their goods, and thus circumvent the textile quotas established by the Multi-Fiber Agreement. The new General Agreement on Tariffs and Trade (GATT), however, is phasing out the textile quota system, and reducing tariffs so that preferential treatment will be far less important.
Finally, Mauritius was lucky. Like the Asian Tigers, it pursued an export-oriented strategy at a time when most other nations were looking inward. In contrast, a couple dozen African nations are now planning to participate in a global competition for foreign investment. Mauritius was also able to turn its isolation and small size to advantage; the creation of 90,000 jobs absorbed all of its excess labor -- but similar-sized job creation would barely make a dent in the unemployment situation in a large country like Kenya.
Kenya joins the craze
Kenyan authorities, mesmerized with the Mauritius success story, are forging ahead with an EPZ plan. While approximately 97 percent of African EPZ workers are in Mauritius, Tunisia or Egypt, according to Kanyenze, of those countries which have recently embraced EPZs, Kenya is one of the furthest along.
The Kenyan EPZ Authority, created by the EPZ Act of 1990, has certified 13 zones in four cities including Nairobi. So far, more than 20 companies employing more than 3,000 workers are active and exporting from EPZs. Currently, Kenyan EPZ jobs are predominantly in textiles; the government would like to see a diversification to include leather goods, electronics and telecommunications products, solar products and horticulture processing, says the EPZ Authority's promotions executive, Jonathan Chifallu. In 10 to 15 years, Chifallu says, the government hopes to see 30,000 jobs in the EPZ sector.
The broad goals of the Kenyan EPZ program, says Chifallu, are creating jobs, expanding the country's export base and eventually promoting training and technology transfer. He also hopes local, African-owned and -operated companies will eventually take advantage of the EPZ benefits. For now, most EPZ investors are foreign, from Hong Kong, Korea, Germany, Ireland and elsewhere.
As in other countries, investors in Kenyan EPZs are exempted from a wide range of taxes and regulations. In addition to a 10-year tax holiday, investors receive a waiver of import and export duties and of value-added taxes (VAT). They are exempt from the country's Factories and Statistics Acts, which subject factories to a number of inspection and reporting requirements.
All licensing and other bureaucratic requirements are handled not through normal government agencies, but through the EPZ Authority, which provides streamlined, "one-stop" service for EPZ investors. EPZ Authority officials also provide "aftercare" once new facilities are operating; they will speed the unloading of goods or oversee utility connections, if there is any bureaucratic delay, and otherwise intervene to overcome bureaucratic obstacles, says Chifallu.
The streamlined assistance from the EPZ Authority is particularly important in overcoming Kenya's legendary corruption, says James Gatigi, manager of the Sameer Industrial Park, an EPZ in Nairobi. "Within the EPZ program, companies are sort of protected," says Gatigi. "The framework does not allow for corruption." The one-stop EPZ shop for business licenses enables investors to avoid paying the normal bribes to government officials. Companies "don't have to bribe those guys; they are trying to bring [the companies] here," says Gatigi.
The Sameer Industrial Park is the largest currently operating EPZ in Kenya, housing nine companies which employ 1,300 workers. Investors are from Korea, Hong Kong, Malaysia, Germany and five other countries. Four of the facilities at the site make or assemble garments.
The EPZ is a wholly owned subsidiary of Firestone East Africa, a publicly traded company which itself is 20 percent owned by Firestone/Bridgestone USA. Firestone decided to develop the site for light industry before adoption of Kenya's EPZ Act, quickly turning the industrial park into an EPZ after passage of the Act. Sameer provides perimeter security, general maintenance, and optional support services ranging from secretarial support to forklifts to recruitment.
Firestone insists that EPZ companies tolerate unions; and Gatigi says all companies at the EPZ will be unionized. Although some employers prefer not to have unions, Gatigi says, in fact it is easier to manage with negotiated contracts.
In Kenya, where the labor movement is exceedingly weak -- as it is in almost all African countries outside of South Africa and to a lesser extent Zimbabwe -- unionization poses little threat to employer prerogatives. "Kenyan labor has not been disruptive," Gatigi explains, adding that the country "does not have a militant type" of labor movement.
Agrees Chifallu, "Kenya has a non-militant workforce -- and that is our strength."
EPZs: a bad bet
An obvious concern with the EPZs in Kenya and elsewhere is why investors in EPZs, usually foreigners, deserve preferential treatment over other businesses. Certainly the most beneficial components of the Kenyan EPZ program -- avoidance of excessive bureaucratic licensing requirements, freedom from corruption and the provision of sound infrastructure -- are benefits that should be provided to all investors in the country, most particularly Kenyans producing for the local market, the business group most disfavored by the EPZ program.
The Kenyan officials supporting EPZs say EPZs are just a beachhead in an eventual transformation of the entire national economy. "The reality of globalization is hitting" African governments, says Chifallu. "EPZs are very useful in bringing reforms into the economy ... If they prove effective, they can be extended to the whole economy." But in referring to reforms, Chifallu refers only partially to streamlining the bureaucracy. More generally, he says, EPZs can spur Kenya to adopt a more liberalized, deregulated and export-oriented economic strategy.
In that sense, EPZs pose a major threat not only to workers but to Kenya and African nations' economic well-being. As governments spend resources on EPZs, they forsake the opportunity, as the ZCTU's Kanyenze points out, to create more jobs for the same amount of money by investing in and supporting small enterprises serving the local market. Even more dangerously, they adopt economic policies that tie their countries ever tighter into the globalized economy but which are likely to discriminate against and harm local businesses producing to meet local needs.
The winnings and losses of the African countries' heavy wagers that they will be able to grow and prosper in the global casino economy will be totaled in the years and decades to come. For now, it can be said that they are betting against the odds.
| ACCRA, GHANA -- The firing of more than 50 garment workers at a Volta Garments
factory housed here in Ghana's capital city's export processing zone (EPZ)
stands as a potent rejoinder to those who praise the proliferation of African
EPZs and to those citing Ghana as an African free-market success story. The Hong Kong-based Volta fired a first group of workers in June 1995 for refusing to work seven days a week at below the minimum wage; it suspended a second group which took legal action following blocked attempts to form a union. The first group complained to Ghana's Commission on Human Rights and Administrative Justice (CHRAJ), and recently attained a favorable settlement. But although the settlement requires Volta Garments to pay the employees six-and-one-half months of salaries each, the workers remain bitter about their experience with Accra's EPZ. The second group of workers challenged in court Volta's attack on their right to unionize and still await a final verdict. Before the labor conflict and firings, Volta Garments' regular work week was eight hours a day, seven days a week. It paid the workers 800 cedis a day, about 50 U.S. cents, only two thirds of the minimum wage of 1,200 cedis. Even the minimum wage barely pays for a loaf of bread, which costs 1,000 cedis. The Volta Garment workers were entitled to premium pay for overtime and weekend work, but the company refused to comply with the law. Former Volta worker Freda Sasu says her manager "said that he would add it to the monthly pay, but he never did." According to Sasu, any extra pay was at less than the standard rate, not more. Workers complained to the government labor minister when he visited the factory in early 1995, but, according to Sasu, "He said that there was no work in Ghana and that we should just keep quiet." Eventually, the Volta workers decided to challenge the company directly. On June 11, 1995, more than 100 members of the 550 mainly female workforce refused to go to work. "We were tired," says Sasu, "and when we come in they don't pay us." "When we reported to work on Monday, the gate was locked up. They made people sign a form to agree to come to work every day." Fifty-one workers refused; the company then fired them. After the first round of firings, workers tried to improve conditions at the plant by setting up a union. Volta Garments responded harshly. When five workers applied to the High Court for a proclamation that they had the right to join a union, they were suspended by the company. The five have since won the right to return to work, but final disposition of their complaint against the company is still pending in the courts.
EPZs are an important part of Ghana's firm and ongoing embrace of the International Monetary Fund (IMF) and World Bank's structural adjustment program that emphasizes exports and deregulation. Under the leadership of J.J. Rawlings, who first seized power in a 1979 coup and was elected president in 1992, Ghana has carefully adhered to World Bank/IMF-approved policies. It has formally pursued structural adjustment since 1983. In the eyes of the World Bank, Ghana is a structural adjustment success story, registering growth rates of about 5 percent during much of the reform period, high above most other African countries. Critics, however, say that the need to create a "success story" ensured that aid flowed disproportionately into Ghana; that despite 13 years of structural adjustment programs the economy is still structurally dependent on primary commodities (cocoa, gold and timber account for 80 percent of total export earnings); and that dependency on, and vulnerability to, foreign interests has increased, not decreased, with debt rising from $1.4 billion in 1982 to $5 billion in 1994. More immediately, ordinary Ghanaians say that they've not seen the results of the growth. Christian Agyei, secretary general of the Ghanaian Trade Union Congress says: "We think that growth must transfer into development. ... To us, [Ghana] is not a success story." More bluntly, Kwarteng Ofosuhene, a student from he University of Ghana, says, "The growth is always on paper and never in our pockets." Ordinary Ghanaians have much to complain about:
The statistics support Agyei's claims, with an array of social indicators worsening: the country now has a worse under-5 mortality rate then it did in 1975; it enrolls fewer children in primary and secondary school than it did in 1980; and has fewer doctors per person than it had in the 1960s and 1970s.
The case of the Volta workers illustrates clearly the winners and losers in Ghana after 13 years of World Bank/IMF-induced free market "adjustments." The formal sector has shrunk and now employs fewer people than it did in 1960 -- when the population was less than half its present level. Informal work makes up 80 percent of all jobs in cities like Accra. Unemployment has reached an estimated 30 percent. The result: an enormous surplus of workers desperate for a job -- and rich pickings for the sweatshops. When Ghana passed its Free Zone Act in 1995, opening the way for the establishment of EPZs, EPZ investors immediately saw the enormous bargaining leverage they would possess. Although Ghanaian unions pressed the government to guarantee that national labor laws would be applied in the EPZs, reports Harry Mbiah, administrative secretary of the Trade Union Congress, the government refused, agreeing only to a reference that certain International Labor Organization standards would be upheld. With minimal protection for organizing and a workforce that, the investors believed, would work for anything -- as well as tax and other incentives offered to EPZ investors -- companies like Volta Garments were sure to prosper -- and they have. The Volta Garments workers have tried to stand up to the overwhelming power of one of the beneficiaries of Ghana's structural adjustment program, but even their partial victory in winning compensation has brought them little solace. Even though publicity has forced management to improve conditions, many workers say that things have not improved enough and that they will not go back to work for the company. Samuel Asane, one of the leaders of the first group of employees, says sadly, "We are slaves in our own country."
-- Mark Hunter
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