Sarakonda Export Zone: Jobs, Linkages and Mangrove Damage
Sarakonda is a low-income country of 19 million. In 2018 it created a 40 km² export processing zone (EPZ) beside a new deepwater port, financed by a $2.1 billion loan from a foreign state-owned bank. By 2024 the zone employs 42,000 workers, 78% women aged 18–29, in garment and electronics assembly. Average monthly wages are $145, below the $190 living-wage estimate for the capital. Corporate tax is 0% for ten years; the zone's firms imported 88% of inputs and exported 96% of output in 2023, and local procurement is 11%. Two firms account for 61% of employment. Wastewater from dyeing is discharged into a mangrove creek; dissolved oxygen at the outfall fell from 6.1 to 3.4 mg/L. The government's share of EPZ profits in 2023 was $60 million, against $210 million in foregone tax and infrastructure costs. Officials cite 9,000 indirect jobs and a new technical college.
1. Evaluate the EPZ as a development strategy using core-periphery and multiplier concepts, with the figures given.
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Core-periphery. The EPZ is an enclave: 88% of inputs imported, 96% of output exported, and only 11% local procurement. Value added in assembly is captured by the firms and their buyers, while the tax holiday transfers public revenue abroad. The zone is linked to the global core through the port and the foreign bank loan, not to the domestic economy. That is the classic peripheral role.
But the picture is not only extraction. 42,000 jobs, 78% held by women aged 18–29, is real employment in a country of 19 million. At $145 a month the annual wage bill is about $73M (42,000 × 145 × 12). If workers spend 50% locally and half of that on locally produced goods, the local injection is roughly $18M a year, supporting the claimed 9,000 indirect jobs. The technical college is a potential asset if it trains for more than assembly.
Fiscal and vulnerability costs. The government received $60M against $210M in foregone tax and infrastructure costs, so the cash flow is negative in the short run. Two firms account for 61% of employment, so a single sourcing decision could wipe out most jobs. That is not a diversified development path.
Judgement. The EPZ is a partial success in employment and female labour-force participation, but weak in structural transformation. The decisive test is whether linkages rise over time. A zone that stays at 11% local procurement after six years is not graduating. Policy should target supplier development and a scheduled phase-out of the tax holiday, not simply more firms.
2. A minister argues that the environmental damage is 'a price worth paying for jobs'. Assess this claim using the data and the concept of sustainable development.
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The claim treats environmental damage as a fixed price, but the damage is a flow that undermines other livelihoods. Dissolved oxygen at the outfall fell from 6.1 to 3.4 mg/L. Most fish and crustaceans need roughly 5 mg/L or more; 3.4 mg/L stresses or excludes them. The mangrove creek is a nursery and a coastal protection asset. Fishers who depend on it are bearing a cost that does not appear on the firms' accounts - a negative externality.
Jobs and environment are not a simple either/or. Some of the 42,000 workers depend on wages; some of the 9,000 indirect jobs are in fishing and food processing that depend on the creek. If the fishery declines, the net employment gain is smaller than claimed. Sustainable development requires that the zone's benefits not be achieved by depleting natural capital that future generations need.
The polluter-pays principle points to regulation. Effluent standards, a wastewater treatment requirement, and a bond returned only on compliance would internalise the cost. Firms may pass some cost to buyers; the risk of relocation is real but overstated if buyers have due-diligence commitments. A phased standard with a published timetable is more credible than immediate closure.
Compensation is not enough for irreversible damage. If the mangrove is destroyed, cash compensation cannot restore the nursery. The judgement is that the minister's claim is too weak: the environmental cost should be regulated at source, and the burden of proof should be on the zone to show that the creek remains functional.
3. Recommend one policy change and explain the mechanism by which it would raise the zone's local economic benefit.
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Policy: a supplier-development and local-content programme, with a rising local procurement target from 11% to 25% over five years.
Mechanism. The zone's weak multiplier comes from importing 88% of inputs. If firms buy more locally, each dollar of output creates domestic supplier revenue, employment and tax. A supplier-development unit would identify import lines that can be produced locally (packaging, trims, simple components), provide quality certification and working capital, and place engineers in firms to help qualify local suppliers. The target should be phased and published, with penalties only after year three.
Why this rather than a tax change. Raising corporate tax immediately might deter the two dominant firms, which account for 61% of jobs. Local content works through the firms' own supply chains and creates a constituency of domestic suppliers who lobby for the zone. It also builds skills that outlast the tax holiday.
Risks and measurement. Firms may comply on paper by buying from related-party traders; audit the origin of inputs. Local suppliers may be uncompetitive; pair the target with training and access to credit. Track local procurement value, number of domestic suppliers, and wage share, not just jobs.
Expected effect. Raising local procurement to 25% would divert roughly $14 of every $100 of input spending to domestic firms; if input spending is half of export value, the local injection rises materially. The judgement is that this is the highest-leverage change because it attacks the enclave structure directly, while the environmental standard should be pursued in parallel.