Some imported clothes come from other African countries like Lesotho or Mauritius. Isn’t that a good thing? And Bangladesh, which has high levels of poverty, at least exports some clothes. Isn’t that positive?

The challenge is a three letter word: Free Trade Zones (FTZs), Export Processing Zones (EPZs) and the South African version, the Industrial Development Zone (IDZ) like the one at Coega.

What they all have in common is that they are free trade enclaves that provide

• 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.

You can see why they are every foreign investor’s dream and every local manufacturer’s nightmare.

Take Mauritius as an example. Mauritius has been an EPZ since the 1980s and has been used as a model by many other countries, like Bangladesh. The favourable conditions offered in combination with the political stability persuaded many Asian companies, eg from Hong Kong, to build textile companies there. They imported all the raw materials and exported the finished product without incurring customs duty. In terms of labour conditions things got off to a rough start: workers got hired and fired from one day to the next and were expected to work regular overtime without pay. While work conditions have improved, the textile factories still have a reputation for low job security and high overtime demands and fewer of the current generation of Mauritians can be persuaded to take the jobs. As a result is now not only textile raw materials that are imported but also workers from Asia. This has two advantages: minimum wages (already low at R200 to R500 per week) do not necessarily apply to foreigners and/or foreigners are prepared to work for less than the minimum wage.

The situation in Mauritius is representative for EPZs: no value chain gets created in the country, where even the yarn, buttons or zips used in the garments get imported. The country doesn’t share in a company’s profits because of the tax and customs exemptions. Often lower minimum wages apply in EPZs than in the rest of the country. This makes local suppliers outside the EPZ uncompetitive because they have to comply with the higher minimum wage laws. And it means that employees in the EPZs earn wages which do not even cover their living costs. Working environments often involve sweat-shop and hazardous working conditions, as the recent factory fires and building collapses in Bangladeshi garment factories, that killed almost 2,000 garment workers, have shown.

Foreign investment profits from EPZs. Foreign companies have plenty of countries to choose from as EPZs compete for foreign investment, contributing to the often-quoted race to the bottom.

Coega, the South African IDZ in the Eastern Cape has cost 140 billion Rand (R140,000,000,000) in investment and has created 3,000 permanent jobs over a period of 12 years plus about 25,000 indirect jobs and some temporary construction jobs.

These figures, issued by the Coega Development Corporation, have yet to convince me that EPZs are the solution to creating a sustainable manufacturing sector and generating employment.