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Africa: Pitfalls of Export Processing Zones
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Fahamu (Oxford)
ANALYSIS
28 March 2008
Posted to the web 28 March 2008
Herbert Jauch
Under AGOA, Ramatex Textile & Garment Factory, a Malaysian company moved to Namibia. Herbert Jauch looks at the cost of allowing companies to operate without government regulation, tax exemption and government sanctioned suspension of worker rights in Export Processing Zones.
The closure of the Ramatex clothing and textile factory in Windhoek last week, marked the end of one of the most controversial investments in Namibia since independence.
The way in which the closure occurred once again showed the disregard of the company for its workers as well as the host country.
The company managed to mislead Namibia (in particular the government) time and again by providing false information to hide its true intentions of using the country merely as a temporary production location.
While trade unions and government are still trying to achieve some compensation for the retrenched workers, we need to draw some hard lessons from the Ramatex experience.
This article sketches some of the events surrounding the company's operations in Namibia and suggests that a fundamentally different approach to foreign investments should be pursued in future.
When Namibia passed the Export Processing Zones (EPZ) Act in 1995, government argued that both local and foreign investment in the first five years of independence had been disappointing and that EPZs were the only solution to high unemployment.
The EPZ Act went as far as suspending the application of the Labour Act in EPZs which government described as necessary to allay investors' fear of possible industrial unrest.
Namibia's trade unions on the other hand opposed the exclusion of the Labour Act and after lengthy discussions a "compromise" was reached which stipulated that the Act would apply in the EPZs, but that strikes and lock-outs would be outlawed for a period of 5 years.
In 1999, the Labour Resource and Research Institute (LaRRI) carried out a comprehensive study of Namibia's EPZ programme which found that EPZs had fallen far short of the expectations of creating 25 000 jobs and facilitating skills and technology transfer needed to kick-start manufacturing industries in the country.
At the end of 1999, the EPZs had created very few jobs although millions of dollars had been spent on promoting the policy and on developing infrastructure with public funds.
By 2001, Namibia still had not managed to attract any large production facility through its EPZ programme. This changed when the Ministry of Trade and Industry announced that it had succeeded in snatching up a project worth N$1 billion ahead of South Africa and Madagascar, which had also been considered by the Malaysian company Ramatex.
This was achieved by offering even greater concessions than those offered to other EPZ companies, such as corporate tax holidays, free repatriation of profits, exemption from sales tax etc.
Drawing in the parastatals providing water and electricity (Namwater and Nampower) as well as the Windhoek municipality, the Ministry put together an incentive package which included subsidised water and electricity, a 99-year tax exemption on land use as well as over N$ 100 million to prepare the site including the setting up of electricity, water and sewage infrastructure.
This was justified on the grounds that the company would create close to 10 000 jobs.
The plant turned cotton (imported duty free from West Africa) into textiles for the US market.
Ramatex' decision to locate production in Southern Africa was motivated by the objective to benefit from the Africa Growth and Opportunity Act (AGOA) which allows for duty free exports to the US from selected African countries who meet certain conditions set by the US government.
Even before the company began its operations in 2002, it made headlines, as it became the most talked about investment in Namibia.
The debate around Ramatex revolved around the massive size of its operations, the establishment of a new industry and the controversies surrounding the company's environmental impact and working conditions.
A study carried out by LaRRI in 2003 found widespread abuses of workers rights, including included forced pregnancy tests for women who applied for jobs; non-payment for workers on sick leave; very low wages and no benefits; insufficient health and safety measures; no compensation in case of accidents; abuse by supervisors; and open hostility towards trade unions etc.
Tensions boiled over on several occasions.
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After spontaneous work stoppages in 2002 and 2003, Ramatex finally recognised the Namibia Food and Allied Workers Union (NAFAU) as the workers' exclusive bargaining agent in October 2003.
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