By: Thandiwe Kubere
Oxford Business Group (OBG), in partnership with the World Association of Investment Promotion Agencies (WAIPA), presented a comprehensive focus report shedding light on the pivotal role of Special Economic Zones (SEZs) in Africa’s economic trajectory within the framework of the African Continental Free Trade Area (AfCFTA).
Titled “Economic Zones in Africa,” this inaugural collaboration with WAIPA underscores the transformative impact of SEZs in Africa, emphasising the importance of investment in education and vocational training. Such investments not only enhance SEZs’ competitiveness but also contribute significantly to broader human capital development and improved living standards for local communities, aligning economic growth with social progress.
According to the focus report, special economic zones (SEZs) are geographically delimited areas where governments promote industrial activity through a variety of incentives, including the provision of infrastructure and services. For decades SEZs have been seen as beneficial to a country’s economic and industrial development. Governments construct free zones to attract foreign direct investment (FDI), promote trade at the regional and global levels, and enhance economic and social development.
SEZs are managed by distinct regulatory regimes aimed at attracting investors and companies to operate within them, with many providing fiscal incentives and additional services. Most of Africa’s free zones are multi-activity zones, housing a range of industries rather than specialised production centres. Many SEZs across the continent are located near transport infrastructure, such as railways and ports, which helps to facilitate trade.
The report also examines the strategic integration of Fourth Industrial Revolution technologies within SEZs, highlighting how these advancements drive innovation, boosts productivity, and propel sustainable economic growth. It features the synergy between SEZs and AfCFTA, facilitating improved market access, reduced trade barriers, and enhanced participation in regional value chains, augmenting Africa’s overall competitiveness.
The significance of supportive infrastructure development in transport, energy, and digital connectivity has also been deliberated. Robust infrastructure enhances SEZ attractiveness, reduces logistical barriers, and fosters regional economic integration and trade.
Moreover, the Fourth Industrial Revolution has been identified as a key driver for African SEZs, advocating the integration of advanced technologies such as artificial intelligence, the internet of things, and automation. According to the report, these innovations drive productivity, innovation, and job creation within SEZs.
Ismail Ersahin, Executive Director, of WAIPA, emphasised that the critical role of Environmental, Social, and Governance (ESG) considerations in shaping the development of SEZs in Africa is pivotal for attracting responsible investors to SEZs in Africa.
“Cultivating SEZs in Africa requires a holistic approach, integrating ESG considerations as pivotal cornerstones. Underlining eco-friendly infrastructure, fair labour practices, and transparent governance aligns SEZ development with responsible investment, fostering sustainable growth while promoting ethical and socially impactful initiatives,” he noted.
Harry van Schaick, OBG’s Managing Editor for Africa, highlighted that the partnership with WAIPA marks a milestone in understanding Africa’s SEZ landscape. “The focus report underscores the imperative for ESG considerations in the development of African SEZs such as green planning and fair labour practices. It highlights the pivotal role of supportive infrastructure and stable regulatory frameworks in amplifying SEZ attractiveness and fostering regional economic integration,” he added.
The report states that investment in education and vocational training emerges as a crucial aspect, enhancing SEZ competitiveness while contributing to broader human capital development and improved living standards across the continent. There are approximately 5400 SEZs worldwide, with 237 – around 4% – located in Africa. The report outlines that some of these were still under construction as of 2021.
Free zones are a relatively new concept in Africa, with roughly 60% of the continent’s SEZs having been developed since 2000. To date, 37 African countries have at least one SEZ, with around half being fully operational. Approximately $2.6bn had been spent on Africa’s free zones as of December 2022. These zones cover 150,000 ha of land, with funding coming from both public and private investors.
The report also revealed that despite an increase in free zone construction, many SEZs remain underdeveloped or underutilised. In addition, the contribution of SEZs to employment across the continent remains marginal, except in countries located on major trade routes, such as Djibouti.
Mr. Ismail Ersahin, declared SEZs serve to increase exports, create jobs and produce value-added products. Some investment promotion agencies also manage national SEZs. The most successful zones have adopted strategies linked to both the local context and international economic trends via a coordinated institutional approach. To ensure their competitiveness, he advised that SEZs focus on sustainable development and environmental, social and governmental objectives, with long-term development plans accompanied by knowledge sharing.
Explaining on how SEZs can benefit from the African Continental Free Trade Area (AfCFTA), he said AfCFTA will allow better access to the continent’s markets, better workforce mobility, lower costs and higher production standards. Additionally, according to a July 2020 World Bank report, the first phase of the trade agreement, which went into effect in January 2021, could increase regional income by 7%, equivalent to $450bn, accelerate the growth of women’s wages and lift people out of extreme poverty by 2035. Again, greater collaboration between promotion agencies and SEZs should attract investors and help harness the region’s full economic potential.
He mentioned that the major challenges in boosting Africa’s investment profile are often related to perceptions around political instability and insecurity as well as the lack of skilled labour. “As African economies grow, collaboration between public authorities and the private sector can serve to train the workforce. To this end, the challenge for investment promotion agencies and public authorities is to implement programmes that increase the continent’s supply of qualified human resources”, he said.
Given the appropriate level of infrastructure, SEZs will allow African countries to overcome the hurdles that investors are facing today. Many approaches are producing results that can be shared and used by promotion agencies not only in Africa but also globally. Addressing the aforementioned concerns will help to attract more economic operators and foreign investors. Creating a portfolio of projects and channelling more funds into those that align with the vision statements of nations are also important to draw investment. Looking ahead, favourable conditions will ultimately help ensure the robust flow of free zone-related trade in the coming years.
Sharing his view, Gagan Gupta, Founder and CEO of ARISE Industrial Platforms said Africa has witnessed remarkable growth and development in recent years and special economic zones (SEZs) have emerged as powerful catalysts for this trend, spurring economic transformation and attracting foreign investment. “These zones are playing a key role in enhancing regional integration, fostering innovation and technology transfer, boosting export capacity, and encouraging local value addition, which is critical to reducing resource dependency”, he said.
By facilitating the development of vital infrastructure, such as modern and efficient facilities and transport nodes, and creating a streamlined and efficient process for businesses looking to invest in the region, SEZs are playing a key role in overcoming challenges and boosting wider economic growth.
The free trade area was established to promote intra-African trade and accelerate industrial development as part of the African Union’s strategy for structural transformation across the continent. The AfCFTA is designed to create economies of scale, provide low-cost intermediate inputs for African companies, which will in turn help to develop regional value chains, and improve access to cheaper local products for African consumers, enabling the structural transformation of African economies and the reduction of risks involved with overlapping trade rules.