(Ecofin Agency) - In recent years, there has been a multiplication of special economic zones (SEZs) in Africa.  These zones are the backbone of national industrialization policies with more liberalized trade rules. However, despite some noticeable successes, the performance of most of them has been below expectations. 

In Africa, the number of special economic zones (SEZs) is steadily rising but they have failed to meet industrialization, foreign direct investment attraction, and job creation targets. The finding is the conclusion of a report published, in December 2022, by the Senegalese Ministry of Economy. 

According to the report, Africa has 237 SEZs, located in 37 countries. Kenya (61), Nigeria (38), Ethiopia (18), Egypt (10), and Cameroon (9) have the largest number of such zones. 

On the continent, most SEZs are not specialized. 89% of them are multisectoral (agribusiness, equipment and appliances, pharmaceuticals, etc.). Only Ethiopia (Hawassa/textile), Gabon (Nkok/wood) and Morocco (Tangier Med and Kenitra/automotive and aeronautical industries) have so far developed specific zones to exploit their comparative advantages in specific sectors.

Special economic zones are geographical areas -mostly located at borders- that offer investors tax incentives (reduced or eliminated taxes), infrastructure (developed land, factory buildings, public services), a special customs regime (exemption of inputs from customs duties and taxes), and simplified administrative procedures. They owe their fame mainly to being instrumental to the economic takeoff of Asian giants such as China, South Korea, Hong Kong, and Singapore.

In the 1980s, the creation of special economic zones in Chinese port cities such as Zhangzhou and Shenzhen enabled the Middle Kingdom to structurally transform its economy by diversifying and increasing its exports of manufactured goods. According to the World Bank, Chinese SEZs have accounted for at least 22% of GDP, 46% of FDI, and 60% of exports in recent years. They also created more than 30 million jobs and accelerated industrialization, agricultural modernization, and urbanization in the country, while allowing the transfer of technology, technical know-how, and managerial skills.

Manufactured goods account for less than 25% of exports

Back in Africa, SEZs have so far failed to industrialize economies. Between 2015 and 2020, manufactured goods accounted for less than 25% of African exports but represented  61% of imports.

Some success stories have been noted in countries such as Morocco, Ethiopia, Mauritius, and Djibouti. Those few exceptions aside, African SEZs have performed poorly compared to their counterparts in Asia and Latin America, where they have played a key role in attracting FDI, industrialization, and job creation.

Their job creation rate is very low (usually below 5%) except in Djibouti where they contributed 48% to national employment. A study of a sample of twelve African countries (Angola, Djibouti, Egypt, Ethiopia, Ghana, Kenya, Morocco, Rwanda, Senegal, South Africa, Tanzania, and Togo) reveals that the average number of jobs created in each SEZ is between 1001 and 10,000 per zone.

Goods excluded from trade preference programs

Few SEZs stand out for creating a relatively large number of jobs, such as Tangier Med in Morocco (80,000) and Alexandria Public Free Zone in Egypt (74,000).

When it comes to attracting foreign direct investments, the performance of African SEZs is modest. Morocco and Ethiopia are often cited as success stories in this chapter. Thanks to SEZs, FDI flows to Ethiopia have increased by almost 50% per year since 2010, reaching $4 billion in 2017.

With more than a thousand companies operating on its premises, Tangier Med is a real pole of FDI attraction and wealth creation. Private investment is estimated at $6.2 billion, with annual sales of nearly $8.7 billion, annual production of more than one million vehicles, and exports of around $8.9 billion, corresponding to nearly 30% of Morocco's total exports.   

The report attributes the poor performance of SEZs in Africa to most of them not being closer to sea - for sea transport, failures in the input supply chain, high energy costs, and governance issues.

SEZs are also penalized by the exclusion of their products from the trade preference programs established by some regional economic communities such as ECOWAS, WAEMU, and the Arab Free Trade Area, because of the competitive prices that firms located in these zones can offer compared with ordinary firms that export to the same market without the same advantages. Hence the need for in-depth discussions on how to ensure that companies located in SEZs benefit from the advantages of the African Continental Free Trade Area (AfCFTA) without overly penalizing ordinary companies.