A major backing for Africa’s industrialisation is the establishment of Special Economic Zones. Special Economic Zones (SEZs) are geographically selected areas in which trade laws are different from the rest of the country. SEZs are country-specific depending on the industrial goal. They can be; Free-trade zones (FTZ), Export processing zones (EPZ), Free zones/ Free economic zones (FZ/ FEZ), Industrial parks / Industrial estates (IE), Free ports and /or Bonded logistics parks (BLP)
The advantages of SEZs are the opportunities they provide enterprises to produce and trade goods at a lower price, aimed at being globally competitive. Globally, Industrial Parks (IPs) have been keyed as remedies to urban expansion, fostering industrialisation and channelling foreign know-how and capital that bypasses many obstacles of domestic business environments.
Industrial Parks (IPs) generally serve a myriad of purposes. These largely manufacturing-based sites are characterised by their physically secured geographical delineations; benefits for investors physically within the zone; single management or administration; duty-free advantages and streamlined processes in a separate customs area.
Additionally, IPs traditionally function under more lenient economic regulations than those generally in effect regarding issues like labour, land use, foreign investment, etc. They are equipped with efficient customs, timely licensing, and registration, usually through ‘one-stop-shop’ services; have significantly better and more dependable infrastructure, including roads, power, Internet, and water compared to local economic climates; offer fiscal incentives (i.e., capital freedoms and certain levels of tax incentives and subsidies) to anchor investors.
With the right implementation, Special economic zones (SEZs) or Industrial Parks can be an efficient tool to drive industrialisation and structural change. The idea of an industrial zone is currently becoming more widely accepted. Countries across the world are looking more closely at the opportunities offered by zones, and trying to take advantage of their ability to spur structural change and economic growth.
Special economic zones: The case of Ghana
In recent years, Ghana’s industry has been a significant driver of economic growth; this tendency persisted in 2020 and 2021 despite widespread interruptions brought on by the COVID-19 outbreak. The sector contributes significantly to employment and exports, highlighting its significance as government works to increase the economic impact of value-added sectors, and draws investment into developing markets.
According to the World Bank, the industrial sector generated GH¢140bn (US$23.9bn), or 34 percent of the GDP in 2020. As the second-largest industry in the nation after mining, manufacturing generated over GH¢40.2billion (US$6.9billion) in economic production in 2020, up from GH¢36.2billion (US$6.2billion) in 2019. Manufacturing output increased by 4.2 percent in 2018 and 6.1 percent in 2019. Due to the lockdown and other precautions taken in the wake of the pandemic, output growth slowed down to 1.4 percent in 2020. In 2021, manufacturing continued to be the primary industry contributor to GDP growth, supporting Ghana’s broader economic recovery.
In fact, the sub-sector expanded by 6.1 percent in the year’s first quarter before picking up speed by 8.3 percent in the second. The industry expanded by 1.3 percent in the first quarter and contracted by 4.3 percent in the second, outpacing the segment’s performance during the first half of the year. Mining saw contractions of 11.2 percent and 18.9 percent in the first and second quarters, respectively, which contributed significantly to the industrial sector’s lackluster performance.
In 2018, refined petroleum products were the largest activity within Ghana’s manufacturing sub-sector by revenue as a percentage of total sales and receipts in the industry sector, according to the Integrated Business Establishment Survey published by the Ghana Statistical Service (GSS). These are followed by food products and beverages (9.1 percent), basic metals and fabricated metal products (3 percent), rubbers and plastics (3 percent), and chemicals (3 percent) (1.8%).
Government has prioritised the expansion of manufacturing, which employs most people in the industrial sector, as a means of integrating unofficial employees into the legal economy. Government ultimately aims to increase economic growth and productivity. 18.6 percent of the nation’s overall workforce was employed in manufacturing in 2018, which made up about 92 percent of all businesses engaged in industries. Since 2013, when manufacturing employed about 8.9 percent of the workforce, the latter number has been rising gradually. Similar increases were seen in the percentage of the workers employed in industries, which increased from 14.1 percent in 2012 to 21.1 percent in 2019. The UN Industrial Development Organisation (UNIDO) reports that incorporating technology and producing more medium and high-tech manufactured items have both advanced significantly in Ghana since 2005.
As part of government’s Industrial Transformation Agenda, the Ministry of Trade and Industry (MoTI) has given priority to the creation of free zones and industrial parks with a focus on industries. The country wants to establish itself as a manufacturing hub in the area, therefore the ten-point strategy, which was unveiled in 2017, aims to boost domestic production capability.
The four Export Processing Zones (EPZs) in Ghana include the Ashanti Technology Park, the Tema EPZ, the Sekondi EPZ, and the Shama EPZ. These regions permit duty-free imports of machinery and equipment. According to a 2021 study from the UN Conference on Trade and Development, 30,000 new direct jobs were produced in Ghana’s special economic zones in 2019, accounting for around 1 percent of all jobs nationwide.
The independent GFZA oversees and issues licenses for free zones, which are governed by the Free Zone Act of 1995. The free zone programme offers incentives such as the elimination of import licensing requirements, complete exclusion from direct and indirect tariffs, and levies on exports from the zone and imports for production and streamlined customs procedures. Importantly, the zones permit any investor, foreign or Ghanaian, to hold 100 percent of the business. In addition, businesses and developers operating in free zones are not subject to income tax for the first ten years of operation until the rate rises to 15 percent.
The macroeconomic foundations needed for Ghana’s manufacturing sector to enable long-term growth and industrialisation are in place. Despite 2020 being a difficult year for investment, the sector has still attracted it. The nation’s initiatives to address infrastructural and supply chain issues, increase the ease of doing business, and offer enticing incentives for participants in its free zones may draw additional investment to promote productivity gains and higher-value manufacturing.
The Industrial Development Programme initiated by the government includes plans to establish Special Economic Zones (SEZs) in each of Ghana’s 16 regions. The SEZs will have a greater scope than the EPZs under the industrial transformation programme, with industrial and other relevant infrastructure created for and in collaboration with the private sector. The Tema EPZ, a 4.9 million-square-metre zone situated 6 kilometres from Ghana’s major seaport, served as a model for the newer SEZ legislation, and would be expanded upon.
Government assistance in purchasing land and the provision of off-site and last-mile infrastructure to attract private investment will be crucial parts of the development of SEZs. Its main objective will be to draw capital into the pharmaceutical, textile, garment, petrochemical, machinery, equipment, electronics, and automotive assembly and component manufacturing industries.
Next Steps: Turning on Africa’s industrial growth engine
With Ghana’s renewed interest in SEZs, the country’s economic growth will be free from constraints such as regulatory regimes and infrastructure to land and trade logistics. So far, efforts made to create a conducive economic environment for business, attract FDIs, encourage exports and manufacturing, reduce widespread unemployment, support the build-back-better agenda, et al., have been enhanced by the establishments of two leading privately developed Industrial Parks – The Meridian Industrial Park (MIP) and the Dawa Industrial Zone (DIZ).
The Dawa Industrial Zone, for instance, is a fully-serviced industrial park strategically located 25km east of Tema, with access to the ECOWAS market and proximity to the International Airport and the Tema Habour. This Industrial Zone offers industrial utilities and world-class infrastructures on a 750 and 2000-acre facility respectively, accommodating all types of light and heavy industry.
Africa’s industrial growth engine in the covid era requires critical attention. Governments across the continent, together with the African Union and the Continental Free Trade Area Secretariat must lead the effort to get the private sector in this industrial transformation story.
The writer is a financial advisory and international trade professional