Special Economic Zones in Africa

In Africa, there are an estimated 237 SEZs, found in 38 countries.

However, only a few countries – such as Mauritius, Rwanda and South Africa – actually created the number of jobs, produced the volume of exports, and secured significant amounts of investment to justify the massive resources governments gave them compared to domestic sectors.

The aim of SEZs is to attract new investments, manufacture new products and to create jobs. In return, foreign companies are granted tax, regulatory and labour concessions.

The overriding idea is to concentrate limited public funds, resources, and infrastructure to develop or establish new industries with the help of private sector investment, skills, and technology.

Clustering infrastructure, industries, and public goods in one specific region means a country can leverage scale to build a critical mass of related, complementary and synergetic value chain components – that need similar skills, technologies, and market links – to form an ecosystem to boost economic development, and foster innovation.

Importantly, SEZs are generally established because governments lack the skills, resources, and capacity to introduce nationwide reforms to establish conducive environments for investment attraction, industrial upgrading, and infrastructure development.

Governments also establish SEZs because they lack the capacity to tackle vested interests, incompetency, and corruption, which undermine industrialisation, and then implement it on a smaller, more protected and ring-faced scale, through SEZs.

However, if investments can be attracted, industrialisation fostered and technology, knowledge and skills acquired through normal policy avenues, incentives, and state-business partnerships, SEZs are not necessary.

GROWTH MODELS

The post-colonial growth model many African countries pursued has been that of exporting commodities, low productivity sectors – such as the informal economy and subsistence agriculture – a dominant state to create jobs, businesses and services and low levels of private sector activity.

SEZs could potentially be used to break this post-colonial growth model which reproduces underdevelopment, stunts development of domestic private sectors, and overextends the state, which lacks capacity.

For starters, SEZs could be used to build local production capacity, to create new industries, beneficiate raw materials to create value-added industries, attract foreign investment when it is difficult to do so during normal circumstances and to develop an export economy.

SEZs can also be specifically established to transfer new technology, knowledge, and skills, which is critical to industrialisation.

However, before an African country establishes SEZs, it must put together a national industrialisation, economic growth, or long-term development plan.

In Africa, only Mauritius, Rwanda and Morocco made SEZs part of their national development strategies.

Such a plan must be based on an analysis of the country’s economy, its development needs and its human capital.

In many African countries, SEZs are often set up for ad hoc policy objectives, such as only job creation or only attracting foreign investment.

Business cases for SEZs are rarely made.

African governments often establish SEZs without having anchor private sector investors. In some cases, African public sectors are the anchor investors.

Among others, Ghana, Ivory Coast and Nigeria have been successful in processing cocoa by securing European companies as anchor investors to co-produce chocolate for export.

OBSTACLES

African governments often don’t have an adequate understanding of the requirement of businesses they want to invest in their SEZs.

The legal, regulatory, and institutional structures of many African SEZs are often lacking or poorly defined – open to different interpretations or not consistently implemented.

African governments often take long to put legal, regulatory, and institutional structures for SEZs in place – and sometimes even longer to operationalise. Business procedures are also often slowed down by red tape.

In some African countries, the governance management structures of SEZs are often run solely by the state – and corruption, incompetence and mismanagement are replicated in the SEZs.

Public infrastructure in African SEZs is often as bad as in other parts of the country.

The supply of power, water, rail, roads, ports, and internet is often not consistent. This makes it unproductive for investors to set up SEZs as the cost of infrastructure is a determining factor for businesses.

Many African SEZs are often not internationally competitive. Worse, in many cases African SEZs do not build local productive capacity.

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