Harare – Special economic zones (SEZs) have become a key driver for foreign direct investment in Africa.
A report published last week by the United Nations Conference on Trade and Development (UNCATD) revealed that FDI investment in Africa increased and is likely to increase further due to established Special Economic Zones.
“Many of the major investment recipients in both Africa and Asia expect FDI to pick up in the coming years, thanks to SEZs and investments in natural resources. Ethiopia’s newly built industrial parks are expected to help the country register FDI inflows exceeding $5 billion as early as 2019.
“Zambia also expects higher FDI flows in agriculture and energy projects, thanks to the development of multiple farm blocks and economic zones. In Mozambique, new investments in oil and gas are projected to push the country’s FDI inflows in 2019 back to the 2012–2013 levels of $5–6 billion of natural resources,” stated the report.
The year 2018 saw an increase in FDI inflows for Africa, after a significant contraction for two years, FDI flows to Sub-Saharan Africa increased by 13 percent to $32 billion in 2018. The report revealed that FDI inflows to 33 African Least Developed Countries increased by 27 percent to $12 billion, although they were 44 percent below the annual average of 2012–2016.
SEZs were adopted relatively late in Africa, although they have been gaining increased traction recently.
“With infrastructure and institutional weaknesses widely recognized as major factors hampering economic development in Africa, the creation of zones that allow governments to concentrate administrative resources and infrastructure provision in confined areas is often seen as a pragmatic solution to structural shortcomings.
“Today, there are an estimated 237 established SEZs in Africa, although some are still under construction. In addition, there are more than 200 single-enterprise zones (or free points). SEZs are found in 38 of the 54 economies on the continent, with the highest number in Kenya. SEZ programmes in the three largest economies on the continent — Nigeria, Egypt and South Africa – are well developed. Many smaller economies have established SEZ frameworks only in the last 10 to 15 years and tend to have a relatively smaller number of zones,” the report said.
“Although the objective of most SEZs on the continent, especially in Sub-Saharan Africa, is to enhance manufacturing and exports in low-skill, labour-intensive industries such as garments and textiles, some countries are targeting diverse sectors and higher value addition.”
According to UNCATD, Morocco has oriented some its free zones to high-tech activities and the automotive industry. Even in Sub-Saharan Africa, the SEZ regimes established in the last decade, for example in Rwanda and Senegal, are focusing on a broader range of value-added activities.
“Some countries link SEZs to natural resource endowments, aiming to attract investors in downstream processing industries, to diversify an export profile that is skewed towards unprocessed resources. For example, Nigeria established several zones focused on oil refining. Some African countries, especially the LDCs, have benefited from bilateral and multilateral assistance in finance and capacity building for the construction of SEZs, notably from China” stated UNCATD.
The report has shown that in many countries, zone programmes account for a major share of exports, particularly manufactured exports. In Sub-Saharan Africa, where the proportion of manufactured goods in total exports tends to be low, zones account for nearly 10 percent of exports in Kenya and Ghana. Some African governments have used SEZs as part of their export promotion strategies, backed by trade preferences.
“The adoption across industries of digital technologies, advanced robotics, 3-D printing, big data and the internet of things – is changing manufacturing industries. The declining importance of labour costs as a locational determinant for investment will have fundamental implications for SEZs.
“SEZ development programmes will need to adapt their value propositions to include access to skilled resources, high levels of data connectivity and relevant technology service providers, potentially through partnerships with platform providers,” concluded the report.