January 28, 2012

Excellent incentives combine with stability and security: Shanghai Daily

Free zone integration and expansion will bring benefits for the country and investors. Exiting developments are taking place in Eritrea’s free zones, which will make a huge impact on trade and productive output in the country.

Like all free zones, businesses based within the Massawa Free zones Authority and the Massawa Port Authority benefit from excellent conditions and incentives.

The Eritrean government is hoping this new integrated development will attract considerable international attention and business, as it upgrades the port and airport facilities at Massawa and Assab.

Given the political and social upheavals in neighboring countries, Eritrea offers stability and security for investors. They also benefit from excellent road and sea links, and Eritrea’s strategic location on the Red Sea trading route—one of the busiest trading routes in the world.

The free zones offer excellent opportunities for Chinese trade, shipping and logistics companies, which can also enjoy the use of warehouse in Eritrea’s free zones, and can be utilized as a distribution center for Middle Eastern and African countries. They can also use them to export items manufactured within Eritrea, and establish shipping lines in Massawa or Assab to transport goods throughout Africa by land or sea.

Some 20,000 vessels a year pass Eritrea loaded with around 700 million tones of cargo—more than 9 percent of the estimated 7.7 billion tones carried by global shipping as a while.

The Massawa Free Zone encompasses about 5,000 hectares, including the port and airport. Authorities have invested tens of millions of dollars in preparing the infrastructure.

The new integrated free zone (EFZ) will be significantly bigger. It will incorporate the ports of Massawa and Assab, with all their combined facilities, the refineries, the salt works and the airports.

Investors can enjoy a range of excellent incentives, including exemption from paying customs duties, income tax or tax on profits. They can also work in any convertible currency. The EFZ, which will expand in to more of the coastal area, will take in foreign and local economic activities across all sectors.

Chief executive officer of the Eritrea Free Zones Authority, Araia Tseggai outlines what makes Eritrea’s existing free zones so important to the Horn of Africa.

“First our geographical location is of importance because it is right there on the trade route of the world. The ships passing through load all kinds of facilities. We have a captive audience that makes it more feasible,” he says.

“Secondly, the costs are low compared to other free zones in the region. The productivity issue has to do a lot with out exposure to many factories.

“With our government’s welcoming attitude, investors coming here would find it easier to minimize the bureaucracy, hassle and corruption that exist in most other countries. They would be doing their business as cheaply as possible.

“From the beginning, our cardinal rule was not to see investors as cash cows. Of course, they are the source of our revenue indirectly, but we are not going to require too much from them,” he says.

What they give by being here and staying here is much more valuable in terms of revenues for the government than putting a registration fee. We facilitate the investor’s benefits totally.

“Benefits are always tempting: like I said, whatever you can find in others you can find here: 100 percent repatriation of your profits, no taxation of any kind on your profits, activities or income,100 percent repatriation of your staff, your goods, your factory if you build it yourself—you can do whatever you want with no restrictions.

“Likewise, there are no restrictions on ownership; you can be a foreign owner by yourself, you can be in partnership with a local person or partnership with another country- all of that is immaterial. The bottom line is that it is your money and your investment.

“There are also no restriction on labor practices as long as they fulfill international conventions, which we have signed, including no child labor, payment of overtime, medical help at work and working conditions that are healthy and safe—the same as is required everywhere else in the world,” says Tseggai.

“We also have the common Market for Eastern and Southern Africa (COMESA) made up of 19 countries that have no taxation regiment between them. That community, with a combined population of 400 million, an annual import bill of around US$32 billion and an export bill of US$82 billion, offers our free zone investors 40 percent added value.
“So if it made in Eritrea, well, of course it could be sold in Kenya through COMESA benefits, as if it is their country. No additional taxes are paid and that opens up many market areas in the African continental zone.

“These are some of the things that we do and the location, the low cost, the benefits that we give them, the various activities that we are willing to go with the free zone status, and the fact that it is open to all businesses.”

Tseggai explains how the benefits to Eritrea will also be significant.

“Free zones tend to be engaged in assembly line production,” he says. “Consequently they have a lot more people working in those factories than normal automated assemblies. So the amount of employment generated could be huge.

“Let’s say a factory employs 500 people: the company starts creating a supply line for itself, internally, which creates employment in other parts of the economy, such as transport, electricity….it is an accumulative growth for the country.”

Now is an interesting time for Eritrea, a country that, through the opening up of its mining sector, can look forward to continued development, with a view to having sustainable growth. As the President himself says “If we can manage our partnerships with China and other investors in this country in a realistic manner, we can do a lot.”

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