Special economic zones in Southern Africa: white elephants or latent drivers of growth and employment? The case of Zambia and South Africa

Abstract

The successful use of special economic zones as economic tools for export-led industrial development in East Asia propelled a wave of similar initiatives across Africa. In Southern Africa, Zambia and South Africa instituted special economic zones in their respective legal and institutional frameworks in the 2000s as mechanisms for catalysing industrialization and employment creation by means of domestic and foreign investments. Using a case-study approach, we find that special economic zones in the Eastern Cape, South Africa, are largely latent drivers of growth and employment hampered by inadequate infrastructure financing and provision and weak local supplier capabilities. Special economic zones in Lusaka, Zambia, face similar constraints but are further hampered by inadequate business services provision, burdensome regulations and business procedures, a fragmented incentive framework, institutional coordination failures, and a weak design that does not leverage strategic anchor industries for greater agglomeration economies, thus rendering them more of white elephants.

Learning from experience: Special Economic Zones in Southern Africa

“…An SEZ in Zambia cost US$230 million from 2010 to 2018, and attracted projects worth US$245 million in the same period. By 2040, it is expected to cost the state US$1.2 billion (Phiri and Manchishi 2020). Zambia abruptly eliminated income tax incentives for SEZs in 2018 on the grounds that the costs to the fiscus outweighed the benefits.…”

“…According to the World Bank (2020), a survey found that reliable electricity was critical for company decisions on investment locations. Yet SEZs across Southern Africa faced regular load-shedding by national grids in the late 2010s (Phiri and Manchishi 2020). In effect, states are not willing to prioritize the SEZs to the extent of exempting them from load-shedding, which would effectively increase the burden on the rest of the economy or on households.…”

“…Simultaneously, most Southern African governments have sought to encourage local procurement by SEZ investors, although often not very effectively. Zambian policy calls for SEZ tenants to procure 35 per cent of their inputs locally, but the guidelines are not enforced (Phiri and Manchishi 2020).…”

“…This paper reviews the factors behind the shortfalls of SEZs in more detail. It has benefited from earlier research published by UNU-WIDER (Adu-Gyamfi et al 2020;Dube et al 2020;Karambakuwa et al 2020;Phiri and Manchishi 2020).…”

Barriers to entry and the role of African multinational corporations: Entrants in intermediate industrial products (inputs into construction)

“…15 Involvement of the private sector in this initiative is significant, and Kafue Steel sees itself as playing a lead strategic role in driving this process. 16 Compared to Zambia, South Africa's relative success in attracting investments from MNCs in manufacturing activities has been anchored in attaching supply chains to specific economic zone regions, a process that is in its nascent stages in Zambia (Phiri and Manchishi 2020).…”