The last 20 years have seen the proliferation of export processing zones (EPZs) globally. About 5,400 EPZs were in existence as of 2019, with about 1,400 of them less than five years old. Since their introduction in the 1920s, EPZs have changed significantly, offering various scales of domestic sales and incentives. Many African countries including Ghana joined the bandwagon. However, after 25 years of EPZ existence in Ghana, policy experts have called for a review of the concept because although it offers generous terms to firms, it has stalled in fulfilling many of the objectives for which it was set up. Additionally, the zones appear to neglect the fundamental dimensions of the sustainability standards required for effective EPZ development. The Ghana model could thus benefit from reviews that offer prospects for sustainable development.
Objectives
The goal of this study is to assess the extent of sustainability of EPZs in Ghana, to benchmark them against the most sustainable zones globally, identify gaps and offer recommendations for policy, regulatory and institutional reforms and, possibly, retrofitting. The study discusses the alignment between Ghana’s EPZs and sustainability-oriented infrastructure, policies, practices and institutional setups. The aim is to support the government’s industrial policy drive, expressed in the One Region, One Industrial Park (1R1P) policy and the One District, One Factory (1D1F) policy.
Approach
The analytical framework evaluates the economic, social, environmental and technological performance of Ghana’s EPZs under three important themes: sustainable EPZ policies, sustainable infrastructure and sustainable regulatory support. The study engaged with multiple stakeholders playing diverse roles in the EPZ ecosystem in Ghana. Extensive desk reviews and structured interviews with experts and stakeholders on sustainable EPZ were also employed.
Key findings
a. Economic sustainability of the program
Ghana’s EPZ program is not well connected to other industrial policies or the broader development agenda of the government. There is also no strategy to integrate the activities of the EPZs into the broader economy and increase the multiplier effects of zone activities. An even more serious observation is that the current compliance and reporting regime under the various EPZ incentives is not rigorous and reliable enough to religiously safeguard the interest of the state. The free zones scheme has been embroiled in many instances of abuse and revenue leakages that must be urgently tackled.
b. Environmental sustainability
Currently, Ghana is not experiencing serious environmental problems within its EPZs because of the limited number of firms in operation and their relatively small sizes. However, risks exist if the number grows quickly and the current practices persist. At best, the Tema enclave is at the rudimentary stage of maintaining environmental sustainability. Furthermore, the environmental management in the single-factory zones is difficult to classify as some of them do not have basic pollution abatement technology. Key elements of environmental sustainability that are missing in Ghana’s model are: integrated sustainable infrastructure; climate-friendly investment generation; low-carbon policy incentives and regulations; and carbon finance. Renewable energy options also have not been adopted on a larger scale to abate carbon emissions and slow down climate change.
c. Social sustainability
Unlike in South Africa where authorities have declared zero tolerance for corruption, Ghana’s EPZs do not have a policy on how to curb and control corruption activities. Although stakeholders strongly agree that corruption is prevalent, not many resources have been marshalled for its control. Communities surrounding the Tema enclave, led by the local government authority, have complained about the non-existence of corporate social responsibility projects by enclave-based firms within their municipality. This has created some animosity and litigation between companies in the enclave and local government authorities who have levied contentious taxes on firms in the enclave to support local development.
d. Technological sustainability
Technology adoption in the zone is minimal; it is mainly informed by market conditions and strength of firms. The Ghana Free Zones Authority (GFZA) could do more to promote technology adoption in the zone. Moreover, technology has not been adopted on a wide scale to improve on the vital dimension of environmental sustainability. The cost of technology and inadequate labor skills are key barriers to technological advancement in the EPZs.
Key recommendations
- The Ministry of Trade and Industry must develop a comprehensive policy as soon as possible to lay a solid foundation for the strategic management of EPZs in Ghana and their positive effects on sustainability, linkages and national development.
- Enclave-based infrastructure has proven to be critical in the promotion of sustainability in EPZ activities. The foregoing is premised on the fact that the facility must integrate all aspects of sustainable manufacturing activities in its design. However, constructing integrated EPZs across the 16 regions of Ghana could prove costly for a government that can barely balance its budget. The private sector should be brought onboard. The private sector’s involvement could be a public-private partnership arrangement or purely privately owned but regulated by the government to guarantee the incentives under the scheme.
- Infrastructure development must not concentrate on the zone only. A conscious effort must be made to develop infrastructure that improves the general business environment (roads, ports, electricity, water, sewage disposal or treatment) to make non-EPZ firms competitive.
- Backward and forward linkages should be forged using the administrative setup of the GFZA. The GFZA must employ deliberate, reactive and proactive strategies to connect the activities of the zone to the broader economy.
- Intensify efforts to nest climate-friendly investment activities and a carbon finance policy for the EPZ. This could be done by influencing the carbon emission of firms with incentives, thus impressing on them to invest in products that will eventually help the country meet its climate change targets and Sustainable Development Goals.
- A new EPZ concept founded on technology-based best practices must be employed to eliminate the human element in the vetting and monitoring processes. Inter-agency collaboration should be strengthened to share information and reduce the systemic rigidities in enforcing regulatory compliance.
- The Ghana Free Zones Authority Act and the legislative instrument guiding the operation of the zone should be reviewed, along with a functional review of the administrative setup. This recommendation arises from the evidence that the current regulatory regime leaves room for abuse and corruption and does not have sustainability at its core.