Special Economic Zones in Africa

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• GUILLAUME GUMÈDE

MANY SPECIAL ECONOMIC SEZs (SEZs) established by African countries since independence have failed for the same reasons that development has failed in those countries: corruption, incompetence and failure to integrate SEZs into a long-term development strategy.

In Africa, there are about 237 SEZs, spread across 38 countries.

However, only a few countries – such as Mauritius, Rwanda and South Africa – have actually created the number of jobs, produced the volume of exports and obtained significant investments to justify the massive resources that governments have given them compared to to national sectors.

The purpose of SEZs is to attract new investment, manufacture new products and create jobs. In return, foreign companies benefit from tax, regulatory and social advantages.

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

The clustering of infrastructure, industries and public assets in a specific region means that a country can leverage scale to create a critical mass of related, complementary and synergistic value chain components – which require skills, similar technologies and business linkages – to form an ecosystem to drive economic development and foster innovation.

It is important to note that SEZs are usually established because governments lack the skills, resources and capacity to introduce nation-wide reforms to establish enabling environments for investment attraction, modernization industry and infrastructure development.

Governments also establish SEZs because they lack the capacity to tackle vested interests, incompetence and corruption, which undermine industrialization, and then implement them on a smaller scale. , more protected and more discreet, through SEZs.

However, if investment can be attracted, industrialization encouraged, and technology, knowledge and skills acquired through normal policy channels, incentives and state-business partnerships, SEZs are not needed.

GROWTH MODELS

The post-colonial growth model pursued by many African countries has been one 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 that reproduces underdevelopment, stifles the development of domestic private sectors and expands the state, which lacks capacity.

To begin with, SEZs could be used to build local production capacity, create new industries, enrich raw materials to create value-added industries, attract foreign investment when it is difficult to do so under normal circumstances and develop an export economy.

SEZs can also be specifically created to transfer new technologies, knowledge and skills, which are essential for industrialization.

However, before an African country establishes SEZs, it must develop a national plan for industrialization, economic growth or long-term development.

In Africa, only Mauritius, Rwanda and Morocco have integrated SEZs into their national development strategies.

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

In many African countries, SEZs are often created for one-time policy purposes, such as job creation or attracting foreign investment only.

Business cases for SEZs are rarely done.

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

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

OBSTACLES

African governments often do not have an adequate understanding of the needs of the companies they wish to invest in their SEZs.

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

African governments often take time to put in place the legal, regulatory and institutional structures of SEZs – and sometimes even longer to make them operational. Business procedures are also often slowed down by bureaucracy.

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

The best management model for SEZs is a co-governance structure between the state and the private sector.

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

The supply of electricity, water, rail, roads, ports and internet is often not consistent. It is therefore counterproductive for investors to create SEZs because the cost of infrastructure is a determining factor for companies.

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

Governments often do not prioritize the use of SEZs to develop new export industries or to link local industries to global value chains.

LOCAL LINKS

Many African and South African SEZs are not tied to their national economies, but operate largely as enclaves, disconnected from the national economy and local businesses.

There is often no special effort to build the capacity of local suppliers who may not have the capacity to supply inputs to foreign firms in the SEZs.

SEZs often also fail to integrate primary, secondary and tertiary industries into the investors’ supply chain.

Nor have the SEZs been used to improve the skills, industrial and technological bases of the countries.

Unlike China, Singapore or Taiwan, African SEZs often do not embed the strengthening of research and development into the industrial value chains of SEZ companies.

Technical learning, knowledge transfer and industrial upgrading are therefore not as effective as they have been in many Chinese, South Korean or Singaporean SEZs.

This means that the positive spillover effects of SEZs are absent.

Many African SEZs have faced opposition because they have been built on sites where local residents have been driven off their land. Or, they were built, without being sensitive to the environment and basic human rights, labor rights and freedoms.

SEZs must solve the challenges of Africa’s industrialization.

African countries have struggled to add value to their commodities. They struggled to expand manufacturing, diversify product offerings, and produce export industries.

Africa has not been able to acquire new technologies, knowledge and skills. Unless SEZs can help African countries do all of this, there is no business case for establishing them.

* William Gumede is President of the Democracy Works Foundation and author of ‘South Africa in BRICS’ (Tafelberg)

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