Special Economic Zones:
…a catalyst for continental free trade
Special Economic Zones (SEZs) are ringfenced industrial locations with varied economic rules compared to other areas of the same country. These modified economic laws are made to promote and draw in foreign direct investment (FDI). Beyond the purpose of supporting accelerated economic growth by utilising tax incentives to attract foreign investment, the altered economic regulations generally aim to deliver larger benefits, such as raising skill levels and stimulating technological innovation within a region.
With the emergence of Africa’s Continental Free Trade Area, a major concern sought by industrialists is finding ways to enhance intra and inter-trade opportunities on the continent. The African Union’s (AU) 55 member-countries and eight (8) Regional Economic Communities (RECs) make up the largest free trade area in the world, known as the African Continental Free Trade Agreement (AfCFTA). The overarching goal of the AfCFTA is to establish a single continental market with a population of over 1.3 billion people, and a combined GDP of nearly US$3.4trillion. Simply put, it aims at raising the living condition of the people of Africa. Its mandate is to harmonise trade laws and enable easy trade between African nations by offering a forum for the negotiation of trade agreements and addressing issues that are important to each member-state. The AfCFTA is also one of the centrepiece initiatives of Agenda 2063 themed: ‘The Africa We Want’. It is the long-term development plan of the African Union to make the continent a global force.
Currently, in Africa, regional trade efforts like the AfCFTA and SEZs are two significant trade and development-related initiatives that play a positive role in promoting industrialisation and economic development on the continent. The introduction of the AfCFTA has an impact on the potential for zone creation within its member-states, and dramatically affects the economic environment in which SEZs function. SEZs support the operations of inter-continental trade. Many African countries have modified their policies and regulations in reaction to the pandemic, and the trends of regionalising supply chains to prepare for and respond to geopolitical shocks and to take advantage of new opportunities.
The synergies that exist because of the presence of the AfCFTA and SEZs in Africa could boost trade and make it easier to realise economies of scale in local production. The expansion of continental free trade, with a focus on cross-border trade and logistics, opens possibilities for specialised zones. The Dawa Industrial Zone, for example, is a fully serviced special economic zone that offers access to neighbouring countries by road, with proximity to the international airport and the Tema hub. Such strategic positioning of this SEZ helps to enhance the proximity of trade activities among neighbouring countries (especially in Africa). This economic resolution translates to efforts contributed toward boosting intra-trade and inter-trade activities in Africa. It also provides the opportunity for businesses within the zone to leverage the experiences of more advanced economies to consolidate theirs.
According to the United Nations Conference on Trade and Development, more African nations now have SEZ programmes, and plans are being carried out to increase domestic industrial production capacity, as well as accelerate the AfCFTA’s manufacturing resurgence in Africa. SEZs are essential in providing a distinctive and ideal environment for industrial development; consequently, serving as a catalyst for attaining the AfCFTA’s goal of boosting industrial development through diversification and value chain development, agricultural development, and food security. The COVID-19 pandemic and geopolitical realignments have highlighted the inherent risk of the changing nature of global interaction and promoted a trend toward the regionalisation of supply chains. In other words, rearranging supply chains presents an additional chance to expedite domestic manufacturing in aid of intra-African trade.
To promote the implementation of the AfCFTA and the achievement of its goals, African SEZs require practical strategies and actions in the areas of export diversification, competitiveness, and go-to-market strategies, and balance national and regional development priorities. Accessible markets for SEZs’ products are necessary for their success, which is why the AfCFTA is so important. Regional Economic Blocs and Free Trade Areas are being replaced by the Continental Free Trade Area, which offers greater market access. Numerous businesses in African nations began catering to local and regional markets, which were further made easier by the absence of tight regulations on sales in local marketplaces. SEZs have increased their engagement in intra-African trade since the AfCFTA’s adoption. Exports from SEZs are anticipated to increase by 20 percent on average inside AfCFTA nations, and 15 percent outside of them because of the agreement.
The implementation of the AfCFTA offers several advantages to SEZ operators. The AfCFTA trade policy may benefit SEZs both statically and dynamically, at the firm level as well as at the level of the larger economy, provided that SEZs are given preferential treatment. The RTA increases the size of the domestic market and lowers trade barriers to provide access to lower-cost and higher-quality inputs at the business level. Given that market access is a key factor in determining where investments will be made, the AfCFTA is expected to help SEZs provide commercial possibilities that will be open to both domestic and foreign companies.
The AfCFTA can strengthen regional value chains, and allow SEZs to maintain economies of scale, which from the perspective of the larger economy can help industrialisation and specialisation in SEZs. SEZs can be viewed as a key tool for implementing policy to address institutional, infrastructure, and productivity obstacles that may develop with the implementation of the AfCFTA. SEZs can be an important part of proactive regional development programmes aiming at removing trade barriers, whether they be institutional, infrastructural, or production-related, by establishing trade- and investment-promoting conditions.
It is, thus, worthy to note that SEZs exist to boost industry competitiveness, attract FDI, develop and diversify exports, generate jobs, and test new policies and procedures. SEZs receive benefits such as exemptions from taxes, quotas, labour restrictions, and other restrictive legislation, enabling their products to be produced at prices that are competitive across the globe. The strategic locations of SEZs, their reliable infrastructures, and distinct economic regulations positively affect the trade activities in Africa and help to achieve economic development.
Additionally, through promoting the growth of cross-border backward and forward connections, SEZs can complement the AfCFTA’s goals. Border and cross-border SEZs can significantly boost intra-African trade when they are effectively positioned next to regional economic corridors. In fact, the improved regulatory environment, common processing facilities, infrastructure, and logistical platforms often made accessible by SEZs make it easier to take advantage of opportunities that result from physical closeness and economic congruence.