The challenge of developing special economic zones in Africa: Evidence and lessons learnt

Special economic zones (SEZs) are mushrooming across the developing world. Increasingly, policymakers resort to with aim of turning around their countries’ fortunes. Zones expected deliver greater innovation, exports, knowledge and technological spillovers. Yet, little is known about state play SEZs in Africa, where almost half SEZ programmes less than 10 years old. The recent proliferation continent has rendered need ensure that on objectives more impelling, given often non-negligible opportunity costs associated development. This article addresses this gap sheds light African practices. analysis a novel dataset highlights (i) steep upward trend changing nature; (ii) ability attract industrial activity, proxied by firms, generate employment remains limited; (iii) governance policies (over)rely fiscal incentives performance requirements. Case studies from Ethiopia, Morocco South Africa suggest those have well-targeted strategic focus, promote institutional collaboration take proactive approach create linkages local economy likely succeed. Las zonas económicas especiales (ZEE) están proliferando en todo el mundo países desarrollo. Cada vez más, los políticos recurren estas con objetivo de cambiar destino económico sus países. Se espera que las aporten más innovación, exportaciones, conocimientos y spillovers tecnológicos. Sin embargo, no se sabe mucho sobre la situación ZEE África, donde casi mitad programas tienen menos años. La reciente proliferación continente ha hecho apremiante necesidad garantizar cumplan objetivos, dados costos oportunidad, menudo despreciables, asociados al desarrollo ZEE. Este artículo aborda esta laguna conocimiento esclarece prácticas africanas. El análisis un novedoso conjunto datos pone manifiesto africanas presentan una marcada tendencia alza características cambiando; capacidad para atraer actividad industrial, indicada por empresas, generar empleo sigue siendo limitada; políticas gobernanza dependen (sobremanera) incentivos fiscales requisitos desempeño. Los estudios caso Etiopía, Marruecos Sudáfrica sugieren enfoque estratégico bien orientado, promueven colaboración institucional adoptan proactivo establecer vínculos economía probabilidades éxito. ????????????(Special Economic zone:SEZ)??????????????????????????????????????????????????????????????????????????????????????????????????????????????????SEZ?????????????????????SEZ???????????????????10??????????????????????SEZ?????????SEZ??????????????????????????????????SEZ???????????????????????????????????????????????SEZ?????????????????????????????????????????1)?????SEZ????????????????????????2)?????SEZ??????????????????????????????????????3)?????SEZ????????????????????????????(???)?????????????????????????????????????????????SEZ????????????????????????????????????????????????????????????????????????????????? – geographically delimited areas governments activity through both non-fiscal incentives, infrastructure provision improved services becoming an increasingly widespread development tool rest emerging adoption zone-based developmental strategies, limited until 1990s, reached new heights last two decades. Developing governments, under pressure mobile investment resorted spur productivity, growth dynamism. Recent estimates show there 5,400 globally, up 80 1975 (United Nations Conference Trade Development [UNCTAD], 2019). Although they still account for mere 4% global tally, picking pace rapidly. Many countries seeking revamp already existing or establish regimes. raison d’être behind finds its roots consolidation value chains (GVCs) emergence production networks, leading agglomeration separate functions most cost-effective places (Baldwin, 2011; Iammarino & McCann, 2013). A handful successful cases, mostly located China Asian Tigers (such as often-mentioned cases Shenzhen Suzhou) reinforced appeal eyes countries. embraced increasing enthusiasm. convenience enacting growth-stimulating reforms geographical spaces elicited great interest severe deficits frequently make country-wide structural difficult and/or impractical. Yet performance. prevailing view generally underperformed plethora reasons, including weak capacity (e.g. Farole, Watson, 2001). expansion continent, reshuffling patterns, integration spurred introduction Continental Free Agreement may be altering play. There many questions concerning that, however, remain unanswered. What drives proliferation? Are delivering intended objectives? Or, instead, public money blackholes? And importantly, how can success future SEZs? study draws dominant perceptions driven emulate cases; not reaping full benefits policies; bottlenecks hamper realisation related poor design polices Narula Zhan, 2019; Newman Page, 2017). To assess whether these views hold, paper we first explain studying adopted, before taking snapshot SEZs. followed identification trends patterns. experience group selected setting used dive depth into specific functioning zones. penultimate section presents set policy implications extracts African-specific lessons learnt, recommendations enhance levels employment, exports upgrading. conclusions pull different strings together. built premises reasons found policies. investigate case, adopts mixed-method SEZs, consisting sample case studies. introduces significant novelty stemming primary sources information. We use data, presenting hitherto unseen information pertaining next overview situation Africa. then focus dimensions: terms firms characterisation programmes, special emphasis provided regime requirements imposed SEZ-based firms. do so, data sourced UNCTAD Universe database, which provides 237 aspects functionality, size, legal status. originally constructed 2019, was updated 2020. classification reflects UNCTAD’s definition ‘special zone’. In particular, included dataset, possess three attributes: clearly area, distinct regulatory vis-à-vis country support (UNCTAD, Such follows similar criteria previous catalogues Bost, 2019) but differ datasets developed other international organisations due interpretations broad SEZ. application parameters interest: number hosted individual zones, contributions characteristics choice variables motivated literature covering 2011). Whereas basic all availability issues emerge when looking at attributes Relatedly, concrete details available therefore focuses subsamples total population reliable. Tables A1, A2, A3 A4 appendix provide descriptive statistics samples interest. caveat-free. deal selected, non-randomized data. implies certain degree sampling bias present. practice, underperforming feature samples, well-established countries, such prominently. contrasts anecdotal evidence past reported lower numbers created (Newman That being said, adopted also several strengths. First, non-probability techniques key develop understanding what under-researched population, (Etikan et al., 2016). Second, retains good level representation subregions, five macro-regions north, central, east, west southern Finally, although one ‘best cases’, it displays considerable variation, illustrated standard deviation Table A1. qualitative features methodology essential produce contextual, real-world practical (Yin, 1994). were identified based representativeness relevance our study’s objectives. They rely secondary stem interviews part project London School Economics. 103 conducted firm managers Additional originate consultations held regional actors United (UNCTAD) Geography determinants Indonesia GIZ joint Diversification Secondary target country/SEZ, academic publications, reports, white papers grey literature. blossomed times (Farole, 2017; UNCTAD, latecomers, starting only 1990s 2000s, currently 38 least SEZ, while others plans ones 2020). Overall, estimated established law well exceeds fully operational At time writing, 56 construction, early stage addition, approximately 203 single-factory free points region hosting Eastern 50% Western (24%) Northern (10%). highest concentration Kenya (61 SEZs), Nigeria (38), Ethiopia (18) Egypt (10) (Figures 1 2). expanded 20 1990 share without (16 total), gathered breakneck speed 2010s, 40% up, thanks involvement like process. ascribed trends. On hand, had mature Egypt, pursued diversification strategies portfolios. other, Democratic Republic Congo, Botswana Guinea, boosting foreign direct (FDI) facilitating upgrades. tools, tally planned (53) keeps growing vast majority (89%) multi-activity is, specialize sector (Figure 3). Countries income multi-sector model. Cameroon, Ghana encompass large variety activities. some sectors represented others, food processing natural resource-intensive industries contrast, 10% industries. Examples Morocco’s Casablanca Midparc Zone (the aeronautics) Ethiopia’s Kilinto Industrial Park (pharmaceuticals). remaining 1% consists logistics hubs, commercial, warehousing close airports seaports. lack specialization raises indirect underpin establishment particularly so since relatedness between technologies among territory understood determine nature scope creation bringing productivity gains (Boschma Frenken, 2012). regard, activities along same benefit mutual unrelated (Boschma, 2005). future, researchers should consider establishing specialized continent. Source: Past research exposed FDI flows, attracted generated outcome multifaceted. include mismatch SEZs’ sectorial host country’s comparative advantage; adequate infrastructure; environmental, social (ESG) performance; co-ordinated, high-level political support; unclear business strategy and, broadly, failure embed environment within surrounding Frick Rodríguez-Pose, 2021; 2001; Zeng, fabric been 2021). Our 71 complete 11 presented A1 appendix, A2 summary statistics. reveals inability match socio-economic world regions. per zone, average 60 fewer More 50 200 below 6% 4). greatest normally long-established, wide-area Tanger (750 firms) (Tanger Med Zone, 2021) Egypt’s Alexandria (405 (General Authority Investment, Another criterion measure contribution inconclusive correlation creation. Some documented regions Sanders Brown, 2012), report effect Cirera Qasim, 2014). Using 53 gauge 22 When measuring jobs created, values tend conservative considered. Please refer specification sample. consideration 1,000 10,000 5). examples Suez Chambishi multi-facility zone (MFEZ) Zambia, Atlantic Nigeria’s Calabar Zone. sectoral determines contributions. labour-intensive activities, garments textiles, higher jobs. content employment. mainly industries, Bole Lemi Park, near Addis Ababa, 20,000 garments, textiles leather whole, represent tiny fraction (Table 1). estimates, 5% national sole exception Djibouti. Even targeting does exceed East South-east percentage double digits. small Central American Honduras Dominican Republic, register far (around 30%) trade facilitation attraction instruments, value-added services. Traditionally, formed backbone programmes. range offering exemptions import duties machinery inputs reductions corporate taxes. subsidize utilities (Asian Bank [ADB], 2015). effectiveness tax breaks regimes hotly debated. Aggarwal (2005) stresses role investors. Farole (2011) al. (2019), find any context, granting generous incentive packages become ‘hygiene factor’, returns limited, them conditio sine qua non (ADB, As Figure 6, heavily main lever parts (see list considered). Almost 90% examined compared 80% Tax forms. Countries, Kenya, offer profit, subsidizes skill targeted workforce Mali ties compliance export targets UNCTAD. 70% Mauritius adopt customs regime, duty-free treatment goods, plants machinery. Investment protection measures sample, third measures, single window one-stop shop, ease access government 2015; Kweka, Surprisingly, 20% tool, inadequate singled out investors major deterrent investment, wider 7% amenities, health facilities, recreation facilities educational institutions, credited increase attractiveness (Farole Akinci, vary meet invest shop After offered 30 policies, requirements, either capital expenditure, goals 7). Compared world, restrictive. requiring conditions companies must operate slightly versus Traditionally protect competition, performance-based are, double-edged sword, damaging climate failing comply World Organization regulations (FIAS, 2008; Organisation Co-operation [OECD], 2009). Three findings, each carrying own opportunities challenges, extracted upwards trend, adopting Furthermore, gradually shifting: traditional enclave-like model giving way larger relying various levers, aspiring achieve comprehensive benefits. While additional tools revitalize fabrics, army carries enormous afflicted deficits. limited. few experiencing substantial SEZ-related generation levels, Mauritius, failed significantly alter fortunes bottom pyramid. wave further reiterates risk ending Third, restrictions relative elsewhere overshadow progressive — amenities services, fail equip future-proof proposition capable competing Whether becomes springboard upgrading depends critical factors. focused crucial programmes: 2019), integrated stand-alone interventions (Hazakis, 2014; Mangal, 2016) exert positive impact beyond gates ‘dynamic gains’ (Frick Moberg, dwells studies, representing interconnected advantage stories survey seven reiterated importance having clear advantage, simultaneously catalysts attracting investment. One stated primarily because endowments matched would invested suggests potential maximized competitive edge competitors aligned. showcased occur alignment achieved evidence, stands stark contrast implementation resulted Castells (2014) called ‘high-tech fantasies’ locational factors, sufficiently skilled labour force advanced required Therefore, paramount line sets 2005; Rodríguez-Pose following incremental example, pursuing initially component allow enjoyed rates (Rodríguez-Pose Hardy, representative Morocco, succeeded flows (Africa [AEZO], long dominated low-tech accounting 15% manufacturing gross domestic product 2014 (OECD, 2018). Over decade, destination herding (World Bank, automotive rose 2% overall 2010 16% 2016 (Global Manufacturing Industrialisation Summit, Similarly, medium- high-tech grew 23% 2000 2007 over 2008 2015 (Lahsini, shift towards enabled crafted advantage. strategy, became tools. stability, proximity Europe, low salaries relatively highly workers, attractive FDI. 2018, minimum wage US $300 month, $338 Tunisia $430 Turkey (Mills, agreements trading partners, Europea