The Sunday News
Economic Focus Dr Bongani Ngwenya
NOW that the debate about the Special Economic Zones (SEZs) is over, the Government has finally crafted the necessary framework for the creation of SEZs in Zimbabwe. We can take a leaf and draw lessons from our all weather friend, China and others with similar SEZs success stories.
“It is envisaged that these enclaves help promote value addition and product beneficiation in line with Zim Asset, as well as regional industrialisation initiatives under the Southern Africa Development Community and all umbrellas. Already, Government has targeted industry and zones for SEZs, of which leather and textiles would be in Bulawayo; petro-chemicals in Lupane; tourism, the swathe of territory or corridor stretching from Victoria Falls-Gwayi-Binga-Kariba; finance, Victoria Falls; technology hub, and diamond cutting in Harare and Mutare. Successful implementation of SEZ will attract increased Foreign Direct Investment (FDI), that way increasing capacity utilisation in the economy” (The 2016 National Budget Statement, pp 105-106).
Preamble
SEZs, also referred to as Industrial Parks, when implemented properly and in the right context can be an effective instrument and vehicle to promote industrialisationa shown in some of the emerging countries, particularly those in East Asia. Several countries have begun to implement this instrument for their industrialisation process and economic development strategies, especially as a way of attracting FDI mostly in the areas of manufacturing, creating more jobs, generating exports and earning foreign exchange, and so on. So far, the results are quite mixed with some countries very successful such as China, Singapore, Malaysia, the Republic of Korea, Jordan, Mauritius, and many more telling success stories, and others still struggling, in particular those in the Sub-Saharan Africa (SSA).
Literature is awash with these success stories and suggest that in order for the SEZs to be successful, the zone programmes must be adapted to the host country’s specific situations and context, and build on its comparative advantages over other countries. The key is to make the zones an integral part of the long term economic development strategy, taking into account the commercial sustainability, target markets and businesses, growth trajectory, infrastructure availability, skills and technology innovation capability, and environmental sustainability. This is particularly important since economic transformation can take decades to fruition. In this regard, it is important for policy makers to undertake joint actions and avoid policy inconsistencies in order to promote synergies and co-ordination among the different players. Policy makers and practitioners both at the central and local levels need to make concerted efforts to:
- Make economic zones effective in attracting quality investments,
- Ensure zones are economically viable and deliver positive externalities, including catalysing economic reforms, facilitating learning, innovation, upgrading, and structural transformation, and
- Ensure the sustainability of economic zones from an institutional, social, and environmental perspective.
What can Zimbabwe learn from China and other success stories?
Using SEZs to address the market failures or binding constraints that cannot be addressed through other options, such as in ward look. Such constraints may include issues related to infrastructure development, trade logistics, etc. If the constraints can be addressed through country-wide reforms, sector-wide incentives, or universal approaches, then SEZs might not be necessary, however necessary for Zimbabwe right now. Since SEZs are naturally very expensive undertakings and involve very careful and skilled planning, design and management, they should not be taken lightly. China leveraged the SEZs as a breakthrough towards a market-oriented growth model in an overall very constraining environment and achieved transformative impact. In an extreme environment in the late 1970s and early 1980s, China offered generous fiscal incentives to lure foreign investors besides good infrastructure and efficient public services.
However, today’s macro-environment is different and many African countries are the destinations of industrial transfer from East Asia. Instead of focusing on tax incentives, Zimbabwe should put more effort on improving the business environment including infrastructures and consider “smart incentives” that encourage skills training, technology transfer/upgrading and local economic linkages.
Given the various challenges that the SEZs programmes in Africa face, in order to avoid falling into the same pitfalls in the past, Zimbabwe needs a new SEZs strategy. Such a strategy can draw on the useful lessons and experiences of China and other countries, and can build on the following thrusts:
- A sound legal, regulatory framework and effective institutions with strong and long-term Government commitment will go a long way in facilitating the success of SEZs initiative in Zimbabwe. In most African countries, the SEZs laws or regulations are either missing or out-of-date, and many investment arrangements are done on a Memorandum of Understanding (MoU) basis. Such a practice lacks transparency and clarity of roles and responsibilities of various parties and often puts investments at great risk. In China, the first SEZs legislation was formulated to govern the SEZs at local level, and included general provisions and specific provisions on registration and operations, incentives, labour management, land, etc. In the Republic of Korea, Malaysia, Jamaica, Jordan and other countries with successful SEZs programmes, relevant laws and regulations were also put in place when they launched the programmes. In addition, strong and long-term Government commitment is needed to ensure policy continuity and the adequate provision of various public goods (such as off-site infrastructures) and services (such as one-stop shop). We seem to be also moving in the right direction as Zimbabwe on this score.
- A better business environment inside the zone, including efficient services, such as a one-stop shop and good infrastructure. One of the key objectives of the zones is to overcome the constraints (both soft and hard) of doing business in an economy, such as poor infrastructures, trade logistics, inefficient public services and bureaucracy, power shortages, slow customs, inadequate roads and water supply, etc often making the production costs very high. In China, all the basic infrastructures are provided with high quality in most zones and the one-stop-shop services and after care are very efficient and effective such as those in Shenzhen, Suzhou, and TEDA, to name a few. All these make the zones very attractive to investors. China is also increasingly moving towards the direction of Public, Private Partnerships (PPP) as well.
Initially China started with only four zones at very strategic locations, and once they (especially the Shenzhen one) were successful, the programme was then rolled out in the entire economy. Zimbabwe should seriously learn this lesson and start with one or two and make them truly successful first before starting the programme at a larger scale. Many African countries have started with 10 or even 20 zones all at once, which is a recipe for failure.
- Certain level of autonomy at the local and zone level coupled with clear objectives, sound benchmarking and monitoring and evaluation. Using SEZs to pilot new reforms, as East Asian experience (especially China) shows, would require a certain level of autonomy at the local/zone level. While it is important for the central government to define the overall SEZs strategy/planning and put in place the right frameworks, the local/zone level should have certain autonomy to test new reforms/approaches to make zones to work since in many cases the specific solutions are on the ground. In China, the initial SEZs even have certain legislative power to pilot reforms to improve the business environment. In Zimbabwe, given the limited Government capacity, the private sector can be effectively leveraged to fill the gaps, such as in the areas of zone management, financing, etc.
- Technology transfer, diffusion and skills training. This is crucial for the zones to acquire sufficient manpower and make their products competitive. In China, many zones have well-equipped skills training centres, which work closely with technical and vocational schools, colleges and universities to provide relevant skills training and technology support for the firms in the zones. Some zones also have incubators to nurture new start-ups with certain seeds money. Zimbabwe has this skills training capacity that it can leverage for the success of its SEZs.
- Better linkages with local economy. Zones need to build on local comparative advantages and have local suppliers as part of their value chains. To fully benefit from the zone programmes, the Zimbabwe Government and zone management needs to consider the local comparative advantages in identifying the priority sectors and try to help the local firms to link with investors in the zones through supply chains or sub-contracting. In China, most zones are well plugged in the existing local clusters, so the zones and local clusters reinforce each other through business linkages. Chinese zones also encourage foreign investors to establish joint-ventures with local counterparts. In Taiwan, China, and the Republic of Korea, governments also encourage the backward linkages through technical assistance and other policy interventions. The Mashan Free Zone in the Republic of Korea is a good example in this regard.
- Sound environmental management. As mentioned before, China has paid a high cost in its rapid industrialisation process. At the early stage, most zones paid less attention to environmental protection while pursuing high GDP growth, and today the government has to spend billions of dollars to clean up the environment. Since Zimbabwe’s zones are mostly latecomers, they should take this lesson seriously and adopt strict measures to protect the environment. EMA will have a very active role to play in this regard.
- A good balance between industrial development and social and urban development. Today else where in the World the SEZs programmes are part of the broad urban development agenda and they are included in the urban master planning from early on to ensure the good integration between the zones and cities in terms of infrastructure and social services. Many early-stage zones in China have not done this well despite some exceptions, and Zimbabwe should draw this lesson and strike a good balance from the beginning.
In conclusion the success of our SEZs programmes rest on us fighting the corruption scourge as well. If others have done it, we can do it also.
Dr Bongani Ngwenya is a Bulawayo-based economist and senior lecturer at Solusi University’s Post Graduate School of Business.
