SEZs in Africa: Putting the Cart in Front of Horse?

Africa has launched a new wave of special economic zone or industrial park initiatives in recent years.  Countries like Ghana, Nigeria, Ethiopia, Tanzania, Zambia, Mali, Botswana, etc., either have built some SEZs or are in the initial stages of building SEZs at various scales. While this seems to be an exciting development, it has to be dealt with great caution as well.

Past Experience

It’s not the first time that Africa is developing SEZs (including export processing zones (EPZs) and various industrial parks). The first round happened in the 60s and 70s, and most of the initiatives failed with very few exceptions such as Mauritius, which built an EPZ successfully.  The major reasons for the failure could be attributed to poor governance, a lack of institutional framework and political commitment, weak implementation capacity, and a lack of proper monitoring and evaluation mechanism, among others.

Key Challenges Today

In today’s new endeavors, many of the past lessons have been reflected at different degrees to increase their viability, but on the other hand, many new zones seem to be haunted by similar or new problems.  A recent assessment of several zones in Sub-Saharan African countries revealed the following issues:

• Legal and institutional framework. In many African countries, the current legal and institutional framework for SEZs is either outdated or does not exist, even though the SEZ initiative has been launched or, even in some cases, the parks have been built and operational, such as the Lekki Free Zone and Ogun-Guangdong Zone in Nigeria and the Oriental Industrial Park in Ethiopia. This is like “putting the cart in front of horse”, which has created a lot of confusion and deterred potential investors.
   
• Resettlement issues. In several zones, state governments promised to provide the compensation in the case of land acquisition and resettlement, however, these promises were not or only partially fulfilled, which hinders the further development of the zones. This is especially prominent in the zones which have advanced the furthest, such as the Ogun-Guangdong zone and the Lekki zone in Nigeria, though for the Lekki Zone, the government has promised to settle it early this year. The KoKo zone in the Delta State of Nigeria is at the very early stage, but once it advances, the issue will be quite significant due to the KoKo town in the zone's proximity.
   
• Infrastructure. This is an overall constraint for all the zones but at different degrees.  In general, power, gas, roads, ports, airports are the key constraints and many governments and developers try to resort to the PPP approach to solve the constraints. Given the large investments required for the zones, a strong commitment from government and active participation of the private sector is crucial. New ports are proposed for Lekki zone (Nigeria) and Bagamoyo zone (Tanzania). In the JinFei zone in Mauritius, host government built off-site infrastructure.
   
• Environmental impact. All the zones have committed to comply with the environmental standards and minimize the environmental impact, however, the environmental issue is still outstanding for many zones, especially for those with oil and petrochemical sectors.  So far some zones have completed the environmental impact assessment but some have yet to complete, such as the KoKo zone and Asaba ICT park in Nigeria. When the zones begin to operate, the issue of managing wastes and pollution will continue to be a challenge, especially for those zones with a high component of oil processing and petrochemical sectors, such as the KoKo zone.
   
• Zone management and operational know-how. Most of the zone developers, including the relevant government agencies, do not have the zone management and operational experiences, and many zone developers are only construction companies; therefore, it's a challenge for them to identify the right partners to provide the critical knowledge and expertise on Zone management and operations. In this regard, the Lekki zone is relatively in a better position, which has a former zone developer as its minority stakeholder.
   
• Host government ownership & continuity. This is especially a challenge for those local zones that face a new state government that does not fully recognize the potentials of the economic zones and or fully acknowledge the commitments made by the previous government.
   

A New SEZ Strategy

In order to avoid falling into the same pitfalls in the past, Africa needs a new SEZ strategy, which builds one the following thrusts:

• A stronger stakeholder ownership, which includes a sound legal, regulatory framework, and effective institutions, as well as a better communication and consensus building strategy between the government and private sector/civil society.
   
• A better business environment inside the zone, including efficient services, such as one-stop shop and good infrastructure.
   
• A realistic scheme - starting small and implementable. It’s crucial to make one or two zones work first before scaling-up.
   
• Certain-level flexibility and autonomy at local level: using SEZs to pilot new reforms, as East Asian experience shows, which would require certain level of autonomy at local level.
   
• Technology transfer, diffusion and skills training. This is crucial for the zones to acquire sufficient manpower and make their products competitive.
• Better linkages with local economy. The zones need to build on local comparative advantages and have local suppliers as part of their value chains.
   
• Clear objectives, coupled with sound benchmarking/M&E and competition.  While zones may enjoy certain level flexibility and strong support from the government, they also need to be accountable for the intended results, measured rigorously against the pre-set targets and benchmarked across different zones. Certain level of competition can be a positive catalyst.