Bernadette Deka-Zulu (PhD Researcher-Public Enterprise)
THE establishment of Multifacility Economic Zones (MFEZs) has become a popular strategy for developing countries to attract foreign investment, promote economic growth and development, and create job opportunities.
In Zambia, the MFEZs have become an important tool for the country’s economic transformation. This article explores the definitions, regulatory framework, key challenges, and possible interventions to ensure the success of MFEZs in Zambia.
Multifacility Economic Zones are designated geographical areas that provide an ideal platform for the integration of various industries and sectors to promote economic growth and development.
MFEZs aim to create an environment conducive to investment, production, and export-oriented activities.
Zambia has to date declared six areas as MFEZs and /or Industrial Parks vis-à-vis: Chambishi, Lusaka East, Lusaka South, Lumwana; and Ndola (Sub Saharan gemstones exchange) and Roma Industrial Park.
The MFEZs are located in different parts of the country and are strategically located to provide access to important transport infrastructure such as highways, railways, and airports.
These MFEZs are designed to promote investment in various sectors such as agro-processing, mining, manufacturing, logistics, and services.
The zones are designed to accommodate a wide range of industries, with a particular focus on manufacturing, agro-processing, and value-addition activities. Some of the industries that have established operations for example at the Lusaka South Multi Facility Economic Zone (LS-MFEZ) include:
- Food processing and packaging
- Textile and apparel manufacturing
- Pharmaceuticals and medical supplies manufacturing
- Plastics and rubber products manufacturing
- Building materials and construction supplies manufacturing
- Electrical and electronic products assembly
- Automotive parts manufacturing and assembly
- Printing and publishing
- Warehousing and logistics
- Information and communication technology (ICT) services
However, the LS-MFEZ is designed to be a flexible and adaptable facility, and it is expected that new industries and businesses will continue to establish operations there in the future.
Regulatory Framework
Government enacted the Multifacility Economic Zone Act of 2015, which provides a legal framework for the establishment and regulation of MFEZs.
The Act establishes the Zambia Development Agency (ZDA) as the regulator of MFEZs, which is the primary institution in charge of MFEZs and is responsible for the issuance of licences, regulation of activities, and monitoring of compliance with the MFEZ regulations.
Other institutions include the Ministry of Commerce, Trade, and Industry, which provides policy direction, and the Zambia Revenue Authority, which is responsible for customs and tax administration.
Key Challenges
Despite the potential benefits of MFEZs, they face several challenges in Zambia. Some of the key challenges include;
- Inadequate infrastructure
Without adequate infrastructure, however, these zones may not be able to fulfill their intended purposes.
Some infrastructure related challenges associated with MFEZs in Zambia include:
Limited access to electricity: Many MFEZs in Zambia experience frequent power outages or have limited access to electricity, which can be a major hindrance to industrialisation and business growth.
Poor road networks: The poor state of road networks around the MFEZs can make it difficult for businesses to transport their goods to and from the zones, which can increase transportation costs and reduce competitiveness.
Limited water and sanitation facilities: Many MFEZs in Zambia lack proper water and sanitation facilities, which can have health implications for workers and the surrounding communities.
Inadequate infrastructure can make it difficult for businesses to attract investment and access finance, as lenders and investors may view the lack of infrastructure as a sign of risk.
- Unprofitability of the MFEZs
Many of the companies that have established operations in the MFEZs are focused on exports, but global demand for their products has not been sufficient to sustain profitable operations.
Another issue is the high cost of infrastructure and energy in Zambia. While the MFEZs were intended to provide cost-effective infrastructure and energy to companies, the reality is that these costs are still relatively high compared to other countries in the region. This has made it difficult for companies to compete on price, which is a significant factor in their ability to be profitable.
- Limited access to finance
Limited access to finance is a major challenge facing businesses operating in MFEZs in Zambia. MFEZs are intended to attract investment and promote economic growth, but the lack of access to finance can be a significant barrier to achieving these goals.
Some of the factors that contribute to limited access to finance at MFEZs include:
- Lack of collateral: Many businesses operating in Zambia, SME’s and MFEZs alike may not have sufficient collateral to secure financing from banks and other financial institutions. This can make it difficult to access loans and other forms of credit.
- High interest rates: Even when businesses in MFEZs are able to access financing, they may be subject to high interest rates, which can make it difficult to repay the loan and may limit their ability to invest in growth and development.
- Limited availability of financial services: In some cases, financial institutions may not have a presence in the MFEZs, making it difficult for businesses to access financial services such as banking and insurance.
These challenges and many others have hindered the successful implementation of MFEZs in Zambia.
Possible Interventions
To ensure the success of MFEZs in Zambia, there is a need for interventions to address the challenges facing MFEZs. Some of the possible interventions include:
- The provision of infrastructure such as roads, water, and electricity
- Improving access to finance,
- Enhancing skills development,
The government could also consider providing tax incentives and facilitating partnerships with the private sector to promote investment in MFEZs.
Conclusion
Finally, Zambia has been generous in giving various business incentives to foreign investors whilst tuning out the plight of local ones. Local investors have complained that policy frameworks on investment in the country favour foreign investors, therefore, chocking the locals in the long run.
The government, using various policy framework should constantly work to prioritise the work of local investments and see to it that they grow and expand in the long run.
An example of such deliberate action would be extending tax havens given to foreign investors to local businesses too.
The establishment of MFEZs has the potential to boost economic growth, create employment opportunities, and attract foreign investment. However, the success of MFEZs is contingent on addressing the challenges facing them. Government, working with stakeholders, should implement strategies to address these challenges and create an enabling environment for the successful implementation of MFEZs. bernadettedekazulu@gmail.com
