B20 Document

Thematic Area: Trade, Investment, and Resilient Supply Chains

Special Economic Zones in Africa: Opportunities for Investment

Special Economic Zones (SEZ) represent a key policy instrument for developing nations to boost economic growth, create jobs and promote exports. These are demarcated geographical areas within a country which are accorded distinctive business and investment laws and rules that are designed to offer an attractive investment climate. Since building a nationwide facilitative investment environment is often a challenge for developing countries, the SEZ route has witnessed notable success.

SEZ benefits

In general, SEZ offer the following benefits to investors;

•Fiscal incentives such as subsidies, tax exemptions, lower tax rates, etc.
• High quality infrastructure and common facilities
• Preferential access to credit, land, power, work permits, and so on
• Open customs borders with duty free imports and facilitative exports
• Access to domestic markets
• Facilitative administrative clearances and permits with single point of contact
• Clustering benefits
• Logistics and access to ports
• Skill development

While the term SEZ has been used here, this also refers to export processing zones (EPZ), free zones, industrial parks and zones and freeports. EPZ are the preferred option with the largest number of SEZ based on this model.

The African continent has espoused the SEZ route to build entrepreneurship and promote industrialisation and economic diversification. With the introduction of the African Continental Free Trade Area (AfCFTA), SEZs enjoy significant opportunity to develop as manufacturing hubs that can address the vibrant African market as well as overseas markets. AfCFTA proposes to consider goods produced in economic zones as domestic products and these would enjoy free access within the region. This would enable specialization and resource clustering.

As an integrated market upon its full implementation, AfCFTA has the potential to join existing and new SEZs in synergistic regional value chains that benefit from access to resources, competitive manufacturing, easier cross-border movement of goods and lower administrative and logistics costs.

Current SEZ

As per the Africa Special Economic Zones Organisation, there were 220 SEZ in the continent as of November 2023, spread over 140,000 hectares which had attracted about USD 5 billion in investments and created 5 million jobs.

According to the UNCTAD World Investment Report 2019, the number of SEZ in the world had crossed 5400 in 2019, with about half of them in China. Philippines and India were the other two countries with a high number of SEZs. Kenya had the largest number of SEZ in Africa at 61, followed by Nigeria with 38. In general, of the 203 SEZ in 2021, 29% were in North Africa, 26% in East Africa, 24% in West Africa, 15% in Southern Africa and 6% in Central Africa¹ .

SEZ were present in 47 of the 54 countries in 2021 and have achieved significant success. For example, companies in SEZ in Morocco and Ethiopia are estimated to have witnessed an average compound annual growth rate of 10.2% and 9% respectively between 2008 and 2018.

Although data is lacking, UNCTAD has mapped the number of firms in select SEZ and found that facilities were not fully utilized in terms of operational firms present. The larger proportion of firms are foreign-owned.

The SEZ are also moving up in terms of value-added goods production to include high-technology goods in the sectors of machinery, electronics and automotives. The facilities offered by the SEZ are also improving due to digitalisation and greater use of technology.

The SEZ envision enhanced sustainability interventions in the form of shared resources, renewable energy usage, waste management and green infrastructure development.

Select countries

The Kenya Special Economic Zone Authority aims to ensure an enabling environment for investors and works to create high quality infrastructure facilities and a better investment environment. It provides advisory services to boost the competitiveness of enterprises with enabling infrastructure and policy, legal and institutional frameworks. Its One Stop Shop assists companies in obtaining work permits, approvals and registrations which are fast-tracked for prospective investors. The SEZs also offer credit facilities and a liberalized foreign exchange regime. Several exemptions and provisions in administrative processes are also available to investors.

Foreign investors in Nigeria’s SEZ enjoy full ownership and free transferability of capital, profits and dividends. They also benefit from full tax holiday and duty-free import of raw materials for export goods. They are permitted to export goods with 35% value addition to the domestic market after payment of applicable duties.

Morocco has implemented Industrial Acceleration Zones where investors can benefit from lower corporate tax rates and a range of support services. These cater to sectors such as automotives, aerospace, medical equipment, food processing and so on.

Egypt, Ethiopia, South Africa, Tanzania and many other countries in Africa have also seen successful SEZ which have helped in creating direct and indirect jobs.

Conclusion

With Africa as one of the fastest growing regions in the world and working on a definitive roadmap for development, the continent’s Special Economic Zones present a dynamic investment and partnership opportunity. Many new SEZ are coming up across the region to boost industrial growth and business participation. Combined with the continent’s vast natural resources and young workforce, the options for value addition at competitive rates can be explored by businesses of the world. African SEZ have the potential to emerge as the next big manufacturing opportunity and meet demand worldwide.