Richard L. Bolin, Director Emeritus
World Export Processing Zones Association
Flagstaff, Arizona, USA
No. 1 Ver. 1.02
Copies of this booklet may be obtained from:
WEPZA Secretariat
P.O. Box 986
Flagstaff, Arizona, U.S.A.
Tel: (928) 779-0052
Fax: (928) 774-8589
E-Mail: wepza@aol.com
WEPZA Website: http://www.wepza.org
© The Flagstaff Institute, 2004
Our friend and mentor, Peter F. Drucker, founder of modern management, and leader of seven conferences of The Flagstaff Institute since 1978, recently announced "The Next Information Revolution" in Forbes ASAP magazine for August 1998. The next information revolution is "the redefinition of the function and purpose of business" - it is to put MEANING into the Information Technology revolution of the past 5 decades. And Drucker asks, "Are the information people in Management Information Systems and Information Technology prepared for the new revolution? I see no sign of it so far.
We at WEPZA are trying to keep up with Professor Drucker by putting MEANING into our own revolution in economic development B the export processing zone as the leading device to attract industry to developing countries in the new global market environment.
There are two important points to be made here:
First, we have a clear and very strong statistical record of the half century history of development of the island of Puerto Rico through investment attraction using EPZs which was published in our Journal of The Flagstaff Institute this past April. We know in detail what happened first to which economic sectors and then what followed later -- and this is very significant. This shall be the first part of this article.
Second, because of WEPZA's two year project to prepare the list of 847 zones in the 1997 International Directory of Free Zones and Export Processing Zones, we can now compare 102 countries with zones to 126 countries without zones, and reveal the results. This is the second part of this article which begins on page 9.
PUERTO RICO
Chart 1 shows the results of an efficient program of attracting manufacturers to produce and export from Puerto Rico beginning in 1951. Manufacturing now approaches US$20 billion of Gross Domestic Product per year. No other sector has yet reached $5 Billion.
Three important charts show economic progress of Puerto Rico from 1950 - these are the number of jobs created, the total payroll and the pay levels of workers in each economic sector.
Jobs (Chart 2)
The island has had a relatively stable economically active population of 500,000-600,000 for the last 90 years. After 30 years from 1909 to 1939 in which total manufacturing employment rose only from 16,000 to 23,000, World War II had driven the total to some 40,000 jobs in the manufacturing sector when the EPZ program got underway with the tax exemption law of 1951. Expansion was rapid to 94,000 jobs by 1960 and 150,000 jobs by 1972.
What is important to note is when various levels of employment were reached by the separate industries. Manufacturing employment passed 100,000 in about 1964. It was Services that next achieved 100,000 jobs in about 1987 - 23 years later. And Retail Trade reached 100,000 jobs in 1989 - 25 years later. Construction was apparently stable at about 35,000 jobs, and the same level was reached by the Wholesale Trade sector and the Finance/Real Estate sector in 1987 - some 37 years after Manufacturing achieved the 35,000 level of jobs. Meanwhile, employment in agriculture, mostly sugar production, dropped from 225,000 to 35,000.
Payroll (Chart 3)
Payroll in Manufacturing was at only $9 million in 1939, but reached $132 million by 1958 as new EPZs began to attract export manufacturing investors to the island. It reached $1 billion in 1978, $2 billion in 1987 and $3 billion in 1995. Services reached $1 billion 10 years after Manufacturing while Retail Trade reached that level 14 years later.
The export manufacturing payroll is a rough indicator of the impact on the total economy. This is new money introduced into the economy from abroad. Workers spend it on goods and services during the year and its effect is multiplied several times over as it is spent and re-spent throughout the economy.
Average Pay (Chart 4)
Manufacturing average pay was $18,911 per year in 1995, up from $257 in 1909, $383 in 1939, and $1,584 in 1958. The averages in Transport/Utilities, Finance/Real Estate, and Wholesale Trade ranged up to $3500 above this figure. The average for all sectors was $15,000 in 1995. Well below the average were Retail Trade at $10,000, Construction at $12,000, and Services at $13,000 B a range of $3000. Note that the main providers of jobs other than Manufacturing, were Retail Trade and Services, where average pay levels were about $6000 to $9000 per year below that of Manufacturing.
Summary (Chart 5)
The program of Puerto Rico to attract export manufacturers provided more jobs, higher payroll and above-average pay per worker faster than any other sectors of the Puerto Rican economy. It was the LEADER of economic development. The other sectors were FOLLOWERS.
CHART 5
Conclusion
This is the first time we have seen highly reliable statistical results of an EPZ program. The Puerto Rico experience has been shown to be reproducible elsewhere as similar approaches have been used to bring 8 other countries out of poverty since 1950 (Singapore, Korea, Taiwan, Hong Kong, Ireland, Dubai (UAE), Curacao and Mauritius). The Export Processing Zone has become a proven policy tool which Government can and should use in all countries to ease the pain of delay, red tape, bureaucracy and lack of welcome and assistance inflicted on manufacturers trying to be involved in unfamiliar environments to produce for the global market.
COMPARING COUNTRIES: 102 WITH ZONES, 126 WITHOUT ZONES
WEPZA's 1997 Edition of the International Directory of Free Zones and Export Processing Zones contains information on 847 zones in 102 countries (some are Free Zones, some are EPZs, and many facilitate both trade and export manufacturing). Using these data together with World Bank information on population, area, and Gross National Product per capita for 1995 and with trade data from the WEPZADB program covering imports of the United States and the European Union for 1993-1996, we have compiled statistics for 228 sovereign nations, dependencies and areas of special sovereignty in the world (everybody). We call them all "countries". These have been divided into 102 countries with zones and 126 countries without zones. The characteristics of the samples follow:
CHART 6
| Item | Units | World Total |
|---|---|---|
| Exports to the USA, 1996 | US$1,000 | 791,312,085 |
| Exports to EU, 1996 | US$1,000 | 707,812,999 |
| Export to both USA/EU | US$1,000 | 1,499,125,084 |
| Population estimated 2000 | 000 | 6,063,189 |
| Area | 000 Sq. Miles | 50,625 |
| High GNP/Capita | $/year | Above $9386 |
| Upper Middle GNP/Capita | $/year | From $3036 to $9385 |
| Lower Middle GNP/Capita | $/year | From $766 to $3035 |
| Low GNP/Capita | $/year | Below 765 |
In 1996 the world exported to the USA about US$800 billion and to the EU about $700 Billion of manufactured goods. The imports of these two areas constitute about 40-50% of the world market for most products, and they have been the focus of the WEPZA Database provided to Members for over a decade. World population will reach 6 billion in the year 2000. The World Bank classifies countries by Gross National Product per Capita. The High range is from $9386 to more than $41,000. The Low range is from $80 to $765 and the Lower Middle Range reaches just over $3000 per person per year B these two ranges cover the less/least developed countries.
Our summary of 25 tables covering 102 countries with zones and 126 without zones is in this Chart 7. It shows the export trade with USA and EU for all countries, the simple growth % during 1993-1996, the population, area and number of zones. The bottom half shows comparisons by the GNP/Capita category.
Highlights (Charts 7-8-9)
Conclusion: Zones help developing countries to gain market share. (Chart 9)
And that is why Export Processing Zones are Necessary!
CHART 8
EXPORTS TO USA AND EUROPEAN UNION FROM WORLD
WORLD EXPORTS TO THE US/EU GREW 41% DURING 1993-1996 TO 1499 BILLION
COUNTRIES WITH ZONES
16 UPPER-MID * GNP/CAP COUNTRIES= EXPORTS GREW 62%
37 LOWER-MID * GNP/CAP COUNTRIES= EXPORTS GREW 72%
COUNTRIES WITHOUT ZONES
28 UPPER-MID * GNP/CAP COUNTRIES= EXPORTS GREW 33%
30 LOWER-MID * GNP/CAP COUNTRIES= EXPORTS GREW 1%
*Upper-mid gnp/cap = US$ 3035-9385
*Lower-mid gnp/cap = US$ 765-3034
CHART 9
| Exports to USA + EU (US$Million) | |||||
|---|---|---|---|---|---|
| Description | USA/EU 96 | USA/EU 93 | Growth 93-96 | Market Share 96 93 | |
| 102 countries with zones: | |||||
| 28 w/high GNP/Cap | 620.7 | 484.7 | 28% | 41% | 46% |
| 16 w/ up-mid | 175.7 | 108.1 | 62% | 12% | 10% |
| 37 w/ low-mid | 176.8 | 102.7 | 72% | 12% | 10% |
| 21 w/ low | 143.7 | 90.4 | 59% | 10% | 9% |
| 102 w/zones Total | 1,117.1 | 786.1 | 42% | 75% | 74% |
| 126 Countries without zones: | |||||
| 22 W/O high GNP/Cap | 285.7 | 197.0 | 45% | 19% | 19% |
| 28 W/O Up-mid | 50.9 | 38.4 | 33% | 3% | 4% |
| 30 W/O low- Mid | 31.7 | 31.5 | 1% | 2% | 3% |
| 46 W/O low | 13.5 | 8.6 | 57% | 1% | 1% |
| 126 W/O Zones | 382.1 | 275.5 | 39% | 25% | 25% |
| 228 Countries | 1,499.1 | 1,060.4 | 41% | 100% | 100% |