Abstract
M.Phil. (Industrial Policy)
“Malawi promulgated the Export Processing Zones (EPZ) programme in 1995 in order to address the country’s industrial development and trade underperformance. Under the programme, export processing firms (EPFs) enjoy fiscal incentives provided by government in exchange for the EPFs’ contribution to the general economy. From 2007, the fiscal incentives package has been reviewed and a major change was enforced in 2011 when EPFs started paying 30% corporate tax. This paper explores the effectiveness of Malawi’s EPZ programme as an export-oriented industrialization strategy since the reviewed incentives regime. I utilize cross-sectional data for 2006 and 2015 in order to identify the effects of the programme on foreign direct investment (FDI) attraction, export development, the generation of foreign exchange earnings, employment creation, technology and skills transfer, and linkages with the domestic industry. I find no evidence of any direct impact of the reviewed incentives regime on the performance of the EPFs, but evidence that it negatively affects the ability of the programme to attract FDI. Nevertheless, I find evidence that the underperformance of Malawi’s EPZ programme is mainly due to the production and institutional challenges prevalent within the entire manufacturing sector and the premature de-industrialization of the textile and garments industry. The programme, therefore, has not had the intended impact on the country’s economy in terms of structural change.