THE WORLD BANK

Thomas Farole,

Senior Trade

Specialist

PRMTR

Book launch seminar

March 9, 2011

1

SPECIAL ECONOMIC ZONES IN AFRICA: COMPARING PERFORMANCE AND LEARNING FROM

GLOBAL EXPERIENCE

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Why the interest in SEZs in Africa?

-

500

1,000

1,500

2,000

2,500

3,000

3,500

1975 1986 1997 2006

World excl Africa Africa

>100

Source: ILO (2007), FIAS (2008)

Potential to address key constraints to investment and job creation →

infrastructure, scale, investment climate

High profile zone successes→ Korea, Malaysia, China, Costa Rica,

Mauritius

… but also plenty of failures. Need for better understanding of

performance and the factors that contribute to sustainable success

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A few caveats

SEZ v EPZ v FZ v IZ… many concepts, often quite

different. The subject of this book is mainly EPZs.

Data on zones is hard to come by… and harder to

trust

This is a story about Africa, but much of it should

resonate beyond the continent

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Background and methodology

BNPP funded research program designed in partnership with

the Investment Climate Department

Ten countries

Africa: Ghana, Kenya, Lesotho, Nigeria, Senegal, Tanzania

Asia: Bangladesh, Vietnam

Latin America: Dominican Republic, Honduras

Methodology: case studies and surveys of SEZ firms

Field research carried out between June 2009 and January

2010

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A few key findings on zone performance

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African zones have not yet delivered on their

potential: limited investment# of active firms operating in economic zones (2009)

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Exports are low in most African zones, and some

evidence that growth is slowingZone exports (US$m)

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Job creation has been limited – many African

zones are surprisingly capital intensive

SEZ employment (2008) SEZ employment as % of national industrial sector employment

Bangladesh 218,299 3%DR 124,517 30%Honduras 130,000 30%Vietnam 1,172,000 19%

Ghana (Tema) 2,0253.5%

Ghana (single units) 26,534Kenya (EPZs) 15,127

15%Kenya (single units) 15,551Lesotho 45,130 >80%Nigeria (Calabar- est.)

1,156<1%

Nigeria (Onne- oil & gas)

20,000 N/A

Tanzania 7,500 2.5%

Source: SEZ employment based on data from individual country SEZ authorities; national industrial

employment from various sources

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What matters most to investors in SEZs?

Investor perception of criteria determining investment location

(ranked in order of importance)

Investment criteria Rank

Cost and quality of utilities 1

Access to transport infrastructure 2

Business regulatory environment 3

Tariffs, duties, rules of origin 4

Level of corporate taxes 5

Access to highly skilled labor 6

Access to suppliers 7

Access to low cost labor 8

Availability and cost of land and buildings 9

Access to local and regional markets 10

Access to technology 11

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What matters for SEZ program performance?

exports investment employment

Zone investment

climate

infrastructure -0.654** -0.145 -0.832**

customs -0.698** -0.654* -0.579*

logistics 0.805** 0.103 0.843**

setup 0.386 0.053 0.340

onestop -0.314 0.313 -0.233

regulation -0.201 -0.310 -0.218

National investment

climate

GCI 0.396** 0.473** 0.486**

DB -0.214 -0.352** -0.287**

WGI 0.195 0.141 0.155

Traditional factors

incentives 0.069 -0.424** 0.072

wages 0.073 0.146 0.289**

preferences -0.022 -0.083 -0.029

Management private -0.070 -0.133 0.104

Market access

Remote 0.026 -0.158 0.048

Market 0.402** 0.654** 0.431**

GDP/cap 0.100 0.335** 0.331**

Access 0.165 0.074 0.307**

Other years 0.230 0.175 0.160

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Do SEZs improve the investment climate? – utilities

quality

44

4

95

46

-

10

20

30

40

50

60

70

80

90

100

Africa avg Non-Africa avg

Zones Country

54%

92%

Average downtime (hours) monthly resulting from power outages

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Do SEZs improve the investment climate? –

transport (soft) infrastructure

Average time needed for imports (through main seaport) to clear customs (days)

7.1

3.4

10.3

11.0

-

2.0

4.0

6.0

8.0

10.0

12.0

Africa avg Non-Africa avg

Zones Country

31%

69%

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Some conclusions and policy messages

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Traditional EPZ model increasingly inappropriate

These may all have a role, but risk of “race to bottom”

SEZ success linked to competitiveness of national economy

Consider re-orienting to better exploit comparative advantage

and regional markets will mean re-focusing on zones as

spatial industrial strategy – promoting clusters and value chains

EPZ MODELLow labor

costs

Fiscal

Incentives

Trade preferences

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Starting points for improving potential to attract and

retain investment in SEZs

Improved strategic planning and a transparent, robust legal and

regulatory framework

Address infrastructure gaps inside and beyond the gates:

integrated approach linking to trade gateways

Utilities

Road connections and port improvements

Social infrastructure

Improve zone management through:

− Stronger and more consistent government policy support

− Institutional improvements – authority and coordination

− Private sector participation

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Linkages are critical to achieving dynamic benefits

Worldwide, zones struggle to shift from being enclaves to

integrated contributors of wider economic growth

Traditional EPZ models work directly against integration –

need to promote domestic investment and open up potential

for exchange between zones and local markets

But improving linkages require actions outside zones alone

– Access to finance and entrepreneurship

– Training and skills development

– Open labor markets

– Public-private institutions to promote inter-firm

coordination and information exchange

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Political economy: using SEZs as reform pilots

This is the real success story of China… and also Mauritius

Given the regulatory and wider investment climate constraints

to competitiveness in SSA, using SEZs as reform pilots is a

major missed opportunity to date

Also offer the potential for piloting innovations on social and

environmental compliance

Government willingness to deliver on piloting reforms

through zones may be a useful litmus test as to

whether the commitment and capacity exists to

follow-through with a successful zone program

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In conclusion

1. Still early days – hardly a success story to date, but some

signs of progress

2. The African context is different – target: competitiveness,

regional markets, and value chain integration

3. Focus on: infrastructure and improved planning /operations,

but don’t forget the importance of national competitiveness

4. Long-term, dynamic success with zones requires integration:

Strategic integration: into industrial policy

Physical integration: transport, industry linkages

Institutional integration: inter-agency + public-private

There is much we still need to understand about zones and

how to make them more effective

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1. An edited collection of papers (co-edited with Gokhan

Akinci) – “Special Economic Zones: progress, emerging

challenges, and future directions” – to be published in June

2. We are having another BBL on Monday March 14 at 3PM in

MC7-100

– This will focus on practical challenges with implementing

SEZ projects on the ground, with presentations from

practitioners

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