On Tuesday, Africa Free Zones Organization (AFZO) brings together the leading African economic zones and institutions at the headquarters of the Africa Union (AU) in Addis Ababa to discuss the development, management and promotion of economic zones in the continent.
More than 220 African experts and policymakers representing 43 African countries have discussed the current state and future prospects of industrial development in Africa, with particular emphasis on the challenges and policy trends in the development of Special Economic Zones (SEZs) – which is in Ethiopia named as Industrial Parks.
This high-level meeting organized in partnership with the AU Commission’s Department of Trade and Industry, was held under the theme “Special Economic Zones (SEZs): Accelerator for Industrialization in Africa.” During the meeting, officials and experts of various international and continental organizations have advised the need to harnessing the potential of special economic zones to spur industrialization in Africa.
Dagmawit Moges, Minister of Transport, emphasized the potential and importance of developing integrated economic zones to spur industrialization and boost export by creating synergy with other relevant infrastructures. There is a strong need for transit and transport corridors to link such industrial zones with national and regional markets, Dagmawit stressed.
According to the African Economic Outlook 2018 Report, as almost 90 per cent of all SEZ are located in developing countries, they are struggling to attract national and foreign direct investment to the economy. As to the report, the FDI inflows to East Africa were largely unchanged in 2018 at 9 billion USD. Of which, Ethiopia is the largest FDI recipient in Eastern Africa, with an 18 per cent increase to 3.3 billion USD. Similarly, the FDI inflows to Kenya increased by 27 per cent to 1.6 billion USD, as the country improved private enterprise climate and FDI facilitation.
In this regard, Ethiopian investment is focused on petroleum refining, mineral extraction, real estate, manufacturing and renewable energy, while Kenyan FDI was targeted in diverse industries including manufacturing, chemicals, hospitality, oil and gas.
It was learned that early stage of SEZ operation has had a higher impact on national FDI inflows in most African countries, which showed a rapid increase in FDI inflows after new SEZs become operational.
For example, in Ethiopia, the FDI inflows increased three times from when the first SEZ was open in 2010 until the third zone became operational in 2013. A similar trend can be found in other African countries, for example in Morocco. After the first SEZ became operational, the GFDI inflows increased rapidly and then again the third and fourth were opened. When the fifth SEZ was opened, the SEZ no longer had a noticeable impact on national FDI inflows.
On the other hand, the FDI inflows to SEZs can be volatile on an annual basis, depending on the sector. For example in Ethiopia, most SEZs are involved in the agricultural sector and agriculture accounts for a significant share of the country’s GDP. After the first SEZ was opened, FDI increased by 41 per cent and 18 per cent after two other SEZs were opened in 2014. The FDI inflows to Ethiopia also decreased rapidly in 2015, when the country suffered the most droughts in decades, resulting a significant fall in FDI inflows.
In fact, SEZs have a greater positive impact on exports when outward looking and export-oriented policies are in place at the national level. Some countries, such as Morocco and Ethiopia are explicitly pursuing an SEZ-driven strategy to fuel their trade growth. Morocco has 22 operational SEZs and with firms average compound annual growth rate (CAGR) of 10.2 per cent between 2008 and 2018.
Likewise, Firms in Ethiopian zones (19 operational zones) had a CAGR of 9 per cent during the same period. In some instances, SEZs are an opportunity to test new trade policies, before they are implemented at a national level.
Moreover, SEZs can enhance export diversification and promote linkages in the economy by attracting a range of sectors and by stimulating technology spillover effects and clustering. Tanger Med zones in Morocco have attracted high value generating companies operating in the automotive, aeronautics and electronic sectors. These sectors have benefited from the world class port facility, increased market access and dynamic labor market. As a result, trade has increased directly and indirectly through the associated supply chains.
Regarding employment opportunity, all high performing countries in terms of job growth have multiple SEZs. For example in Morocco, 22 zones have created 500,000 new industrial jobs; and in Nigeria, 10 zones have created 300,000 new industrial jobs. In Ethiopia, the total employment has stayed unchanged since the first SEZ was opened in 2010, however, the share of industrial employment increased by 13 per cent in 2011. Another clear increase took place when Ethiopia opened two SEZs in 2014.
Above all, Ethiopia attracted FDI worth of 3.3 Billion USD in 2018. Of which, 160 Million USD were directed to SEZs. In addition, the 173 companies operating in the 19 zones in the country created about 50,000 jobs. By the same token, Morocco attracted FDI worth of 3.6 Billion USD in 2018 and the zones operating across the country attracted investments worth 3.8 billion USD (combination of national and foreign investment) in the same year. Tanger Med zone with its public private partnership business model attracted most of this investment; and accounted for 30 per cent of total exports in Morocco.
In sum, the gathering of international experts, policymakers and senior executives will assist to exchange effective approaches regarding the contribution of African Economic Zones in supporting industrial development and the implementation of best practices.
The Ethiopian Herald November23, 2019
BY ZELALEM GIRMA
