EPZ Firms Lack Competitive Edge

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By Charles Tjatindi
WALVIS BAY

Increased competition for foreign direct investment worldwide, especially from low-cost countries in Asia and Eastern Europe is exerting pressure on local Export Processing Zone (EPZ) companies.

Add to that a lack of start-up capital. The result is, EPZ companies are finding it increasingly difficult to penetrate and sustain export markets outside Namibia and SACU.

This information is contained in a recent report on the performance of the Export Processing Zones (EPZ) programme, compiled by the Offshore Development Company (ODC).

The report states that some of the enterprises under the EPZ, especially small and medium-sized enterprise firms, find it comparatively easy or more attractive to access domestic markets than to venture into the highly competitive export world, which is increasingly dominated by low-cost countries from the Far East.

According to the report, the small and medium enterprises’ lack of financial and productive resources and capacity to compete in the export market fuels this. The limited involvement of Namibians in manufacturing and exports other than traditional exports of meat, fish and minerals is also attributed to the above phenomenon, the report adds.

The Namibian EPZ regime has attracted interest from both local and especially foreign investors. Foreign investment comes from countries such as Germany, Malaysia, UK, India, Pakistan, South Africa, the US and Belgium. While the majority of the EPZ enterprises are undoubtedly foreign-owned, a few enterprising Namibians have also taken advantage of the generous incentives offered under the EPZ regime, albeit mainly in the form of joint venture partnerships with foreign nationals.

The EPZ is one of Namibia’s industrial development strategies and is an effort to foster greater industrial and economic growth. The EPZ regime came into existence through the promulgation of the Export Processing Zone Act (Act No.9 of 1995). At its inception, the EPZ was expected to contribute to job creation particularly through manufacturing or industrial and export-oriented operations.

The increasing cost of doing business, especially due to the high fuel, transport and utility costs has, however, contributed to the downfall of some EPZ enterprises in the country. Other than that, the depreciation of the US dollar has resulted in a drop in export revenue and therefore constrained the growth or expansion of exporting businesses. The ODC reports that the limited pool of skilled human resources and comparatively high labour costs have also impacted negatively on the progress of the country’s EPZ.

On the socio-economic front, the increasing HIV/Aids prevalence rate is listed as one constraint to the progress of the EPZ programme.

According to the report, the downturn and dynamics in the world economy has seen potential foreign investors adopting a cautious approach or even halting their plans to invest abroad. The generalised negative perception and image of the African continent as an unstable and conflict-ridden spot also hampers the development of the EPZ programme. The report recommends that special attention to encourage and expand domestic savings and fixed capital investments be made. It also states that similar efforts are required to attract investment to least developed areas of the country, with a view to promote balanced regional economic development.

The ODC report found that low capital financing as well as lack of entrepreneurial skills are the major contributing factors to the low involvement of local entrepreneurs in Government-supported initiatives such as the EPZ.

The ODC also reports that lack of appropriate basic business supporting infrastructure and services, such as reliable power and water and affordable business premises has resulted in the preference for major urban centres for the location of investments. Such a situation could be reversed through the adoption of special initiatives to attract and disperse economic development to the least developed areas of the country, the ODC reports.

Namibia has only one Export Processing Zone, located at Walvis Bay. The EPZ Act established the Walvis Bay EPZ Management Company as the management authority over this zone.

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