Debating Special Economic Zones

20 Apr 2014

imageSpecial Economic Zones cover a broad range of specific zone types and agglomerations like Free Trade Zones, Export Processing Zones, urban enterprise zines, business incubators, industrial clusters and many more.

As Zimbabwe’s economy continues to be hobbled by what industry minister, Mr. Mike Bimha describes as serious structural and infrastructural bottlenecks, the Government, supported by the country’s development partners is toying with the idea of introducing Special Economic Zones (SEZs).

UNDP, the World Bank and the African Development Bank are taking the lead in this initiative, proposed in the new economic blueprint, (Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset)) as a key strategy to boost economic growth and generate employment.

According to the Senior Minister of State in the President’s Office, Mr. Simon Khaya Moyo, establishing Special Economic Zones is one of the major responses to Zimbabwe’s current economic challenges and a tool to penetrate regional and global markets.

“As a government, our main objective in establishing SEZ includes restoring economic activity, attracting investment, creating employment and fighting poverty, strengthening industrial development, promoting development of infrastructure and inclusive growth”.

The Minister was the chief guest during a two-day workshop on the establishment of the Special Economic Zones in Zimbabwe, held in Harare, 16-17 April, 2014. The high profile meeting provided an information sharing platform for the various stakeholders to reach a common understanding of the concept of SEZs drawing from local and international expertise.

SEZs are geographic regions where companies operate under ‘special’ regulations which do not apply in the rest of the economy. These regulations can be with regard to taxes, duties, subsidies, immigration regulations and other dispensations, the idea being to provide fledgling companies with the opportunity to develop and grow under favorable conditions.

SEZs can take a variety of different forms, including Export Processing Zones (EPZs) which Zimbabwe implemented over the period 1995—2006 . The EPZ experience, which saw the creation of 205 companies and the generation of $172 million worth of investment, will be key in the provision of lessons learnt.

In China and other East Asian countries where they have been implemented successfully, SEZs have been credited with underpinning the dramatic export-oriented growth. Tunisia and the Dominican Republic have employed the use of SEZs to curb rising unemployment. However, experts say that SEZs are not a cure-all solution for a country’s economic ills, though they do have the potential to create significant economic activity.

“If we are to be wealthy as a country, we must study and understand the causes of other countries’ prosperity and the policies of those who created that prosperity” said the Minister of Finance and Economic Development, Mr. Patrick Chinamasa.

Reflecting on China’s ‘growth’ miracle, Dr. Douglas Zhihua Zeng, a senior economist with the World Bank Group said the numerous SEZs and industrial clusters that have sprung up since the Open Door policy and reforms in 1978 are undoubtedly, two important engines for driving the country’s growth.

“The key experiences of China’s SEZs and industrial clusters so far can best be summarized as gradualism with an experimental approach; a strong commitment; and the active, pragmatic facilitation of the state” he wrote in a World Bank policy paper.

On his part, the former Deputy Prime Minister of Mauritius Dr R. Sithanen underlined the importance of government involvement through establishment of appropriate regulatory and policy infrastructure that would enable the private sector and regional integration to flourish. “In Africa, there is a big gap between policy intent, implementation and execution,” he said.

In a presentation on infrastructure needs and financing, UNDP Economics Advisor, Dr Amarakoon Bandara explained that financing of SEZs should not be a burden on the rest of the economy. That is, the development of SEZs should not rely heavily on financial resources from the rest of the economy.

“Persistent financial burden on the rest of the economy could undermine development outside Zones and thus the net benefit of SEZs could in fact fall short of the cost for the economy as a whole,” stated Dr Bandara, adding that more resources should be generated through fiscal reforms including strengthening transparency and accountability in natural resource revenues.

With support from UNDP and other development partners, a Government Inter Ministerial Technical Committee (IMC) responsible for advancing the SEZ development process, including stakeholder dialogue and Strategy formulation recently prepared some recommendations to be considered by Cabinet on SEZs. If the draft strategy is approved, thorough feasibility studies will be conducted to test the viability of various options. Following the feasibility studies, relevant legislation will be drafted before a SEZ Authority is formed to begin preparations for implementation.