Nation’s Free Economic Zones Still Have Long Way

Tanzania Daily News (Dar es Salaam)

Faraja Mgwabati

6 June 2011

ATUL Mittal, an agro-processing businessman, represents many of the victims of the politics of Africa’s special Economic Zones (ASEZ). Mr Mittal, the owner of Arusha based Mount Meru Millers Limited, quit business under EPZ after what he calls, “Two years of frustrations and problems with TRA and local authorities.”

The company had invested over 15 million US dollars (about 23bn/-) in buying sunflower seeds from 70,000 contracted farmers in Singida and Arusha regions.

After quitting, the company moved to Uganda where a 30 million US dollar (about 46bn/-) plant was set up and the company now is in the process of setting up other plants in Rwanda and Zambia.

“TRA (Tanzania Revenue Authority) and Local Government Authorities are only concerned with their revenue collection targets, without caring about the welfare of the 70,000 contracted farmers in Singida and Arusha who depended on our factories,” laments Mr Mittal.

He says had it not been the problems encountered, the firm could have expanded its investments in Tanzania and exporting to Zambia and Rwanda, “But, now we are investing directly there (Zambia and Rwanda)-the Tanzania government has to be pro-industry and pro-investment.”

Mount Meru still maintains relationship with Tanzanian farmers from whom it buys sunflower seeds but the problem is in that– all other processing activities are done in Uganda, implying that Tanzania has surrendered hundreds of direct jobs to Ugandans.

Mr Mittal accuses TRA of mistreating his firm despite being an EPZ investor with tax exemptions, “Our consignments used to be stranded at the port for up to 60 days despite all documents being in good order… EPZ Authority interventions to have our consigment cleared were in vain.”

According to the EPZ Act, 2002, as part of incentives, investors operating under the zones are entitled to remission of customs duty, VAT, and any other taxes charged on raw materials and goods of capital nature.

The law also exempts pre-shipment or destination inspections. Instead, the investors who operate under EPZ, Customs inspection of goods is done at the site of the investor and goods destined to EPZs are treated as transit cargo.

“The essence of conducting on-site inspection is to speed-up clearing procedures because EPZ investors mostly produce goods for export; when the customs people delay them, they subject investors to undue delays and missing of export orders,” says EPZA Director General Dr Adelhelm Meru.

Dr Meru regrets the quitting of Mount Meru Millers, calling for all government agencies handling investors in the country to facilitate instead of frustrating businesses.

He warns that countries all over the world are competing for investors and that a slight mishandling of one investor could go a long way tainting the image of the country. He accuses some defiant government officials who refuse to recognize the EPZA Act and subject EPZ investors to payment of taxes that are exempted under the Act.

“Let us hope this incident (of Mount Meru) won’t reoccur in future, it’s a shame, let us learn from our mistake,” says Dr Meru, arguing without broadening the tax base through opening doors for more industries and businesses, revenue collection targets will always remain unachievable.

But, TRA Director for Taxpayer Services and Education Protas Mmanda says he had no information about the incidents and required complain letters from Mr Mittal for proof.

“I cannot comment until I see there was any official communications between either EPZA and TRA or Mr Mittal and TRA,” he says, adding that under normal circumstances his authorities would not frustrate investors because they are the source of foreign currency for the country.

Currently Tanzania has a total of 25 free Zones (EPZ and Special Economic Zones), including 6 industrial Parks, 19 Stand alone plants and 44 companies operating under EPZ. Locals represent 44 per cent of companies in EPZ, 41 are foreign and 15 are joint ventures.

EPZ officially started five years ago in Tanzania. A total of 640 million USD has been invested to-date, generating 11,512 direct jobs, with exports reaching 350 million US dollars.

Minister of Industry, Trade and Marketing Cyril Chami, speaking at the African Free Zones Association (AF ZA) convention in Dar es Salaam last month, said the government was satisfied with the performance of EPZA, stressing for further government support to EPZA to enable EPZ and SEZ schemes succeed.

Prime Minister Mizengo Pinda affirmed government support to the Free Zones (EPZ, SEZ), conceding however that infrastructure was still a big challenge, “Infrastructure remains the big challenge but we are facing it headon.”

So far, Mount Meru Millers and Tsubasa Ltd have quitted EPZ. Tsubasa Ltd left for reasons best known to them. However, there are investors not satisfied with the services–poor water supply and erratic electricity in the zones.

Major challenges for EPZA include insufficient funding infrastructure development, with the reportedly receiving as little as 50m/- in annual budgetary allocation, the amount that can hardly finance one investment promotional activity abroad. ‘

‘So far EPZA suffers a deficit of 19.6bn/- for compensating land at Mara, Ruvuma and Bagamoyo EPZ/ SEZ sites,” says the statement from the authority.

Other challenges includes delays of clearance of goods at the port and issuance of work permits, contradictions between statutory EPZ/SEZ incentives and TRA regulations, lack of skilled labour in some fields.

However, the challenges faced by Tanzania EPZ investors are similar to those their counterparts face in other African countries. During the presentation at AF ZA conference in Dar es Salaam, officials from Kenya and Ethiopia raised challenges similar to those echoed by Tanzania.

It is clear that EPZ have benefits to the economy that’s why many governments in Africa have embarked on the strategy after borrowing leaf from the Asian four Tigers- HongKong, Singapore, Taiwan and Malaysia.

But given dozens of incentives provided to investors, what does the country benefits? Dr Meru says mostly Tanzania benefits from direct and indirect jobs.

“Most incentives are just for ten years because investors heavily put in their capital, it may take eight to ten years for them to start getting profits. After that they will not take out their machines, they will continue with business and pay taxes,” says Meru.

Tanzania ranks 128 in ease of doing business out of 183 economies in the world, according to the World Bank’s Doing Business 2011 report.

Surely, if this is happening to investors within EPZ, it is likely that those outside the EPZ have more challenges that need to be addressed by authorities.

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