LETHABO SITHOLE: This is how special economic zones can boost small businesses

Developing special economic zones (SEZs) has become increasingly popular over the past few decades to boost economic growth.

SEZs are designated geographic areas within a country that offer various incentives and benefits to firms that operate within them. These incentives include special regulatory, fiscal and infrastructure benefits, as well as streamlined bureaucratic procedures and other advantages intended to facilitate trade and make the zone more attractive to businesses.

In developed and developing countries SEZs have long been touted as one of the best ways to boost foreign direct investment (FDI), increased trade flows and job creation. While SEZs have a long and rich history, they have been officially recognised in Africa only since 1970 in Mauritius, then Ghana and Senegal at the end of that decade.

It has been estimated in a UN Conference on Trade & Development report that there are more than 240 established SEZs in 38 of the 55 AU member states. However, empirical evidence shows that most African SEZs have underperformed due to inadequate policy and programme design, implementation, development, financing and operation. Therefore, many African countries are creating new SEZs or revising the old ones.

While the success of SEZs in Africa has been mixed, they have the potential to promote the development of small and medium enterprises (SMEs), which contribute significantly to the continent’s economic growth. In Africa, SEZs’ role in SME development as a one-stop shop, particularly for export-orientated enterprises, should not be overlooked. SMEs are a vital part of Africa’s economy, contributing significantly to employment, innovation and economic growth. They should be provided with additional support to ensure they thrive. 

SEZs can provide SMEs with the necessary infrastructure, access to markets, technology and financing to develop and grow. For instance, the Mekelle Industrial Park in Ethiopia , which that was established in 2017, provides SMEs with infrastructure, including factories, warehouses, and utilities, as well as access to finance and training. The industrial park has attracted more than $100m in investment and created more than 20,000 jobs, while also contributing to the growth of several industries, including textiles, apparel and agro-processing.

Single market

The Coega SEZ in SA has also been successful in attracting large-scale investments from local and international investors, creating significant employment opportunities for local communities and promoting knowledge and technological spillovers through its science and technology park. By 2021 the Coega SEZ had more than 50 operational investors across various sectors, including automotive, agro-processing and renewable energy. These investors have collectively invested more than $750m in the SEZ, creating more than 120,000 jobs since its inception. The Coega SEZ has also supported the development of SMEs through various initiatives, such as the Coega Development Corporation’s Small Business Support Programme.

The increased focus on developing SMEs, in particular those that operate from industrial parks, comes as governments across Africa look to capitalise on the benefits associated with the African Continental Free-trade Area (AfCFTA). By creating a single market with a combined GDP of $3.4-trillion and a population of 1.3-billion people, it marks a new era in Africa’s development journey. The AfCFTA provides SMEs with big opportunities to export goods by providing a single market for goods and services, eliminating trade barriers and allowing SMEs to compete on a level playing field.

To ensure success for SMEs within SEZs in the free-trade age SEZs must be aligned with regional and national development strategies. They must focus on promoting regional integration and value addition. SEZ policies should promote inclusive growth by ensuring the benefits of SEZs are distributed across different regions and sectors, fostering linkages between SEZs and local SMEs to create opportunities for local suppliers and service providers, and be designed to facilitate export-orientated growth by providing the infrastructure and support services to attract foreign direct investment and facilitate trade.

Support services

SEZs should operate under a clear, transparent regulatory framework that ensures compliance with national laws and regulations while encouraging investor confidence. SEZs should also be designed to promote sustainable development by taking into account environmental, social and governance (ESG) factors. This includes promoting the use of renewable energy, minimising environmental impacts and ensuring that SEZs are socially inclusive. Implementing these recommendations can enhance the effectiveness and performance of SEZ policies in Africa and contribute to sustainable and inclusive economic growth.

For SMEs to take advantage of the AfCFTA, they will need to have access to the necessary infrastructure and support services. This includes access to finance, technology and markets. Governments and development partners can play a critical role in supporting SMEs by providing technical assistance and financial support to develop the necessary infrastructure and services.

SEZs are an important tool for promoting economic growth, attracting foreign direct investment and creating jobs in Africa. The success of SEZs in promoting SME development and regional integration depends on the careful design and implementation of SEZ policies and programmes. By aligning SEZs with regional and national development strategies, supporting inclusive growth and supporting sustainable development, African countries can enhance the effectiveness of their SEZ policies. This will promote sustainable and inclusive economic growth.

By providing the necessary infrastructure and access to finance, technology and markets, SEZs can help SMEs develop and grow — driving economic development and creating employment opportunities.

• Sithole is managing partner at Amila Africa, a legal practitioner and consultant in international business, trade & investment law.