Overview of EPZA: The Export Processing Zones Authority of Tanzania

Interview with Colonel (Retired) Joseph Leon Simbakalia, Director General of Export Processing Zones Authority (EPZA)

EPZA was established in 2006 with the core objective of building a strong export-led economic development through industrialization. So far, it has attracted a total capital of US$ 1 billion. How many jobs were created?

Our last count was of 36.000 jobs, but as we sit here it is changing to about 40.000. That is the latest intake. Since the program started, it has generated an export revenue of US$ 1,3 billion.

It is clearly a significant project for the country. Do you think that it has put Tanzania on the map as an investment destination of choice?

In Bagamoyo we are going to build a special economic zone project, with modern ports, linked to an industrial zone in hundreds of square kilometers.

We have received attention, but still haven’t reached the size that we envision as our real top potential. The whole program started as part of an economic policy reform, to move away from a socialist-commanded economy to a more open and market-oriented economy. There was a shift in the policy to look into the industrial sites and create new zones. It was a major paradigm shift from import substitution and the inward look of a socialist-oriented economy to international competitiveness. The only way we could verify if we were internationally competitive was through exports. We killed two birds with one stone. First Tanzania starts to sell in international markets and to make its trade grow. Then the country is also able to protect its domestic market, but not through artificial protection of tariff and non-tariff barriers, but through competitiveness.

And technology transfer…

Yes, that comes automatically. When you are forced to export, you must manufacture with a certain quality to meet international standards, so we have to upgrade our technology, our manufacturing methods, everything.

What else can foreign investors bring to Tanzania in terms of capital and expertise?

Well, you know, there is a whole social and economic transformation that goes with industrialization. We are largely an agricultural nation, so when we start industrializing, we also become more urbanized. The creation of industrial clusters and zones is drawing people into urban areas, the industrial workers. That may be a constructive disruption of the existing social order. Urban areas are multiethnic and also, you might say, multinational or cosmopolitan, because foreign investors, foreign workers, people from other countries get to mix with your own people – and your own people come from different ethnic backgrounds. The fortunate thing about Tanzania is that people from different ethnic groups can speak and communicate in one language, the Swahili. In some African countries, it doesn’t happen, because the common language is English, French or Portuguese, because of the former colonial governments. I think that doesn’t do much to break ethnic barriers.

The EPZ Act and SEZ Act are legislations that provide a basket of specific incentives for investors. Can you outline some of them?

There are two classes of investment: fiscal and non-fiscal. Fiscal incentives are intended to give tax breaks for investors to reduce financial risk and bring more investments. Non-fiscal incentives, in my opinion, are more important. For example, how efficient is our port and transportation system. How smooth are the customs’ proceeding operations, how quickly can the visitor come in and solve his issues and move around without government bureaucracy as before. We have a center to look after the investors, not only at the beginning, when they are coming in and registering their company and getting all the procedures. We also have ongoing customer care. Anytime the investor needs any kind of service from the government he can go to an office dedicated for that. In that office we also house people from the Revenue Authority, from Immigration and from Labor.

EPZ also has the power to enter into contractual agreement with investors about incentives and the conduct of business. Can you highlight examples of when these joint-ventures worked well?

2025 is a national target for Tanzania. At that stage, we hope to have industry as the leading economic sector and as the engine of our economy.

That is a very interesting question because, when we started this program, the idea was that if the government established policies for foreign investors, then the market, the private sector, would do the rest. It didn’t work out quite so well. So the next idea was that the government must lead the way, acquire land, enabling the infrastructure, and then let them take initiative. A few years later, the general environment is getting better. Now we have two projects with the private sector. In Bagamoyo we are going to build a special economic zone project, with modern ports, linked to an industrial zone in hundreds of square kilometers. That is going to be the leading project of the entire program, and we have China Merchants Holdings International, a public-listed company of Hong Kong, as a partner. Another partner in the development of Bagamoyo is the State General Reserve Fund from Oman. There you have the PPP: the government of Tanzania is acting through EPZA and Tanzania Port Authority as one party and the other party is China Merchants Holdings International and the State General Reserve Fund. Right now, about 160 km from the city, in a municipality called Morogoro, we are creating another zone, and its construction is due to start in August. It is a development of 10.000 acres, 100% paid by private initiative, a partnership between local businesses, that have a share of 51%, and the other 49% comes from Hyflux, of Singapore, a company with a market cap of around US$ 3 billion. These are two testimonials of the private sector appetite and confidence.

Are there more exciting projects in the pipeline?

Those are the two biggest and there is another one coming in Mtwara, a region that has natural gas and petrochemical industry.

Is it likely that the majority of foreign investors will concentrate on exports from Tanzania and therefore qualify for EPZ and SCZ acts?

It depends on what they are doing. Not every industry is engaged in exports. We have screening criteria for projects that actually qualify for the acts, and we have priorities. For example, a project proposal for cement production perhaps won’t qualify for EPZ or SCZ, for a good number of reasons. But if somebody came with a project for vehicle assembling, it would most likely qualify, because it is a new industry opening up new markets, new technology that would bring new skills and capital. Maybe the first movers in that sector would benefit from EPZ and SCZ. The third, maybe not, because the incentives and laws are improving over time.

The license for the SCZ Act is more rigid than the one for the EPZ Act. Is that a barrier for investors?

The EPZ threshold for exports is 80%. It means that one has to export 80% or more of its production, whereas the SCZ allows companies to explore our local market, it was designed to do that. Most of our companies follow the EPZ Act. We encourage the EPZ because the more companies export, the more they build our trade export capacity and make a significant contribution to keep our balance of payments positive. We really don’t want to promote, within the zones, companies that will be net users of hard currency. We have to use hard currency earnings from selling agriculture goods or tourism to finance other activities.

Tanzania sustains strong economy growth over the years and offers relatively stable conditions for investors in comparison to other African countries. Do you think SCZ and EPZ will favor international investors that attempt to diversify their operations to fasten growth in parts of the global economy?

I think they will, but the idea is not to create industrial colonies in the country that will last forever. These are growth nodes, laboratories for reforms, that in time will induce the conditions that attract investors within the zones. It is all designed so that overtime the zones will blend to become one. Every region is finding and designating proper areas to develop their zones. We are doing that in partnership with local governments and authorities. There will be more clusters: in one area there will be more tourism, in another, agriculture, heavy industries, petrochemical etc.

What is the projected timeline for this?

Ten years, with significant transformation change envisioned to happen by 2020. 2025 is a national target for Tanzania. At that stage, we hope to have industry as the leading economic sector and as the engine of our economy.