Special Economic Zones (SEZ) have been applied in various continents and countries to bring about rapid economic development. In this regard Africa is a late comer. Currently about 240 SEZs are operational in the continent, according to the UNECA. Hence, it has to consider the experiences of other continents so that it can make the best benefit out of them.
Annalisa Primi (PhD) is the head of the economic transformation and Development Division at the OECD, based in Paris, France. The Ethiopian Herald recently met Dr Primi and discussed briefly special economic zones and how they should be promoted and managed. Have a nice read!
Could you tell me about the benefits of special economic zones especially in a continent that is economically and technologically challenged like Africa?
We are here with the development centre to organize this peer learning group meeting with the United Nations Economic Commission for Africa, we have collaborated for a long time. It’s been more than 10 years. With the Economic Commission for Africa we are looking at drivers of economic transformation, we are looking at what the continent can do to transform its economies and to realize the ambition of an integrated Africa and Africa better integrated into the world.
That is focusing, on special economic zones and the financing mechanisms that are working or that are in place to ensure that the special economic zones deliver on the ambition of industrialization and inclusion in the continent. We’re looking at zooming in on the leather industry with specific addresses from the private sector the government and business associations. Now we just discussed, how we can use special economic zones to Foster, Industrial Development. What is worth, what doesn’t work? We are trying to look at experiences from Asia and Latin America and compare them with these experiences in Africa.
My personal view is that special economic zones are one of the tools in the Industrial Development strategy. We must look at the context in which the continent is looking to use special economic zones. On this, I’m optimistic in the sense that it is very beautiful to see Africa with this very strong, willingness to industrialize, create local value addition and do it under the umbrella of an integrated Africa. This is the work that we do together with ECA. We looked at the Africa Continental Free Trade Agreement and now this creates an opportunity through industrialized trade.
Now, to me the challenges in these Special economic zones come from first we need to look at how this industrial landscape is changing very fast and how the industries are changing. And there is a time issue that we need to manage between the use of the tool, the creation of the infrastructure, the creation of the regulations that are required in order to make this delivery, and the fastest speed at which the industry is changing and services are changing across all Industries.
Now, one issue that it is very important to look at what are the objectives that we have for special economic zones in the past, some zones have been accused of not delivering or because we end up just building infrastructure that then is not used, or, that they operate as an enclave so that they’re not creating the linkages, and this is what we don’t want to see. We want to see special economic zones be drivers of transformation.
There is one important issue, which is to look at the big objective. Of course, job creation is a very important objective job creation in terms of quality decent jobs, not just going for, attracting competitiveness and low labor costs. But actually to work on the upscaling of the workers and the conditions for work and also to look at the big objectives in terms of what is the National strategy of each country. That is how hosting special economic zones could be used to create local value addition.
So today we discussed like mobilization of domestic investment and ways of interacting with foreign investors in terms of creating opportunities for learning through R&D Partnerships, through joint ventures and through specific mechanisms that can be set up for this. The foreign investors really link up with the local providers and also put a lot of emphasis in terms of the ecosystem that is needed. For example, here we had the association the Pan African Association of industrial associations from the continent. I think the voice of the private sector from the local is very important.
How can Special Economic Zones provide equal benefits both for the host country and the companies that invest in them?
There are different models for setting up. Special economic zones are physical zones. Some are industrial regimes that different companies can apply to. This is one of the tools of an industrial strategy. So the big issue is to see from the top level of the government how this tool can be used to fulfill the industrialization aspiration. And of course, there will be negotiations, especially with the foreign investors but it is possible to find the win agreement.
The idea is to conceptualize the special economic zones in a way that they deliver to the local economy. And it’s not only the job creation but also the creation of opportunities for industrial Innovation. And so this is why you need a whole of a government approach. Then the trade policy, you need the infrastructure policy, you need investment policy and training, and up-scaling policies on top of the industrial strategies. It is important to have a plan for preparedness for future pandemics, what is happening and the continent but also globally.
So you see anything that you can tell us just as have you learned anything about the dos and don’ts as a latecomer that African countries can learn from this?
We worked on the special economic zones of Shenzhen and Shenzhen is a very specific one because it was a small village that grew up very fast into one of the manufacturing places in the world. So what you had there was first a National strategy from China that allowed Shenzhen to experiment with different policies. Then you had the city that was a geographical location that made it with the proximity to Hong Kong; there was facility also in terms of possibility to create the infrastructure for exports. Those were working and there was a targeted National strategy to support and use the special economic Zone to nurture domestic entrepreneurs.
Then, over the years, even the technological changes globally allow us now to benefit from the manufacturing base to work on AI and more high-tech Industries, it’s a very specific case because we’re talking about one of the fast, rising cities in China in terms of industrial capacity within China, which is one of the emerging industrial powers.
But I think in terms of the Special Economic Zone dos and don’ts, I think that there are two different areas. One is how you conceptualize the special economic zones; and what the models are. I know in the case of Ethiopia, I’m not familiar with recent developments, but I remember in the past when Ethiopia started to set up the special economic zone, there was this very big engagement globally to go and learn. I remember your leaders from here, going out and learning from what the world was doing. You have the modalities of operation: who decides what, who decides, which project is going to be admitted or not the overall specialization, and managing the modalities of attracting Investments. But then there is also a question about the ecosystem.
And this is what I see when we work with other countries. For example, we work on special economic zones in the Dominican Republic and in other countries and you see that what makes them work is when you have a national strategy, they use this special economic zone as one of the tools. I think that this is one of the main points that I always make. It is not that you get it right on this tool and then the country will industrialize and the benefits will accrue. It’s part of a system.
My optimism with regard to Africa is that I see a continental willingness to work on an integrated and industrialized Africa. And I think that under that umbrella there is a possibility to use these ads as ways to make certain Regional knowledge work because they will call for what is missing. You will realize that you do need infrastructure.
It’s very popular because you have the cargo you have Airlines, a lot of factors together is never just one tool because you can get the tool working perfectly but then what you search for the externalities for the country and I think that the prospects are positive. You need a lot of international partners because it’s not only one investor that would make it change.
In these special economic zones, foreign ones come to a developing country like in Africa they come for special treatments like tax incentives. So can we say that the host country can benefit from these foreign investors coming in search of special treatments like tax?
We tend too much to focus on the foreign investors that need to come. One of the things that we’re discussing and this is part of the work that we do is a lot of the success stories come from mobilizing domestic investment in the special economic zones. I don’t think they should be used as a shortcut for getting investments from abroad. Because if you work on this would be like the old-style special economic zones.
You try to create conditions for investors to come and you lower the risk of investment for them because you’re covering for infrastructure, you give certain benefits, but that doesn’t pay off much. I think that special economic zones should be conceptualized. This is a way to give easy access for certain investors to the market.
But as a tool to create local industrial capacities, this would mean that if you can create a certain regime in a certain moment to support and nurture an industry, you have to think of it dynamically because, at the end of the day, you need that the industry is a flourish, they will have to pay taxes to then re-inject the resources to the economy. So I think we need to look at the second generation of special economic zones and not, Not as what was done in the first wave.
Thank you very much.
Thank you so much.
BY ZEKARIAS WOLDEMARIAM
THE ETHIOPIAN HERALD SATURDAY 21 DECEMBER 2024
