Need for pacing the special economic zones implementation trajectory

REFORMING the economy is a very lengthy path. In November last year a number of newspapers were awash with stories that Zimbabwe had begun understudying various countries that have successfully implemented the Special Economic Zones (SEZs) concept as part of their economic reform and transformation. For example, a delegation of senior Government officials and captains of industry embarked on a study tour in China towards the end of 2017 to appreciate how the SEZs have been implemented by the Chinese government as part of the country’s economic reforms.

The study tours had also been conducted in countries such as India, Japan, Malaysia, Ethiopia, Tanzania, Nigeria, Kenya and Ghana, among many other countries. These are some of the countries with success stories to tell with regards to implementation of SEZs. These tours followed the final enactment of the Special Economic Zones Act (Chapter 14: 34) that is, aimed at attracting foreign direct investment (FDI), viewed as critical to stimulating value added exports, creating employment and boosting the country’s economic growth.

For the past several years the country’s performance on FDI has been pathetic, with an average of below $400 million annual FDI inflows as compared to the regional average trend of $1,2 billion. Bulawayo, Sunway City in Harare and Victoria Falls have been identified as potential SEZs in the country, with a tourism hub being targeted for the corridor stretching from Victoria Falls-Gwayi-Binga-Kariba.

The most exciting latest development is the muted consideration by the Government to adopt the Victoria Falls Tourism Special Economic Zone corridor approach in order to boost tourism arrivals into the country. The current SEZs proposals offer quite fair and reasonable incentives, such as the tax exemption for the first five years of operations of the foreign investors, and the subsequent 15 percent corporate tax to be applicable.

The five year grace period of exemptions may be quite long enough for the investors to be able to recoup their initial capital outlay depending on the nature of the business operation or the investment. In addition, the special initial capital expenditure allowance of 50 percent of cost in the first year and the subsequent 25 percent for the remaining two years sounds good.

The proposed incentives also include the flat 15 percent tax rate on specialised expatriate staff and duty free imports for capital equipment and machinery, input raw materials and intermediate products that cannot be produced locally, to be used in the operations of the companies investing in these SEZs.

Of all the countries visited by the Government officials and the captains of industry, China with its historical ties with Zimbabwe may be better positioned to offer a more sustainable model of the SEZs, also considering that China may be a potential future investor in the country’s proposed SEZs. The China Special Economic Zones Model Chinese Special Economic Zones vary in scope and function. Some are designated geographical spaces where special policies and measures support specific economic functions. The proposed adoption of the Victoria Falls Tourism Special Economic Zone does suit this Chinese model, and it can fit well as the intention is to boost tourism arrivals and when successfully implemented, would enable the Victoria Falls Tourism Special Economic Zone to see the emergency of world class tourism and hospitality training institutions that will capture the attention of the entire Sadc region.

Others include free-trade areas, industry parks, technical innovation parks and bonded zones that facilitate experimentation and innovation over a wide range of industries. The proposed Sunway City in Harare does fit well in this kind of the SEZ model, whose main objective is to experiment with innovation and technology. Zimbabwe is seriously lagging behind in terms of technology development and innovation.

Tertiary institutions in this country could take a very active role in fostering technological innovation and entrepreneurial incubation. I was very happy to learn quite recently that the new Minister of Higher and Tertiary Education raised a serious concern and need for our tertiary institutions to be actively involved in technological innovation. I was reminded of the question I raised in the 2012 Zimbabwe National Chamber of Commerce Annual Congress in Victoria Falls.

The theme of that congress was centred on Private Public Partnership (PPP) initiatives. My question was on the role of tertiary institutions in the country that they can play in this (PPP) initiative. My worry was the lack of clear Government policy on the role of tertiary institutions with regards to tertiary-industry partnerships. I followed the question with an economic focus article in one of the 2015 Sunday News newspaper.

China’s experience with SEZs has developed over time. It began in the early 1980s when market-oriented reforms were introduced in selected SEZ areas such as Shenzhen. These were followed in the mid-1980s by the establishment of open coastal cities such as Zhangzhou, designed to stimulate economic growth by leveraging their geographical location and economic opening.

Building on that experience, central and provincial authorities set up high tech development zones in the late 1980s to capitalise on global capital, technology and talent. In the 1990s, in response to China’s economic growth and changing trends, the Chinese Government created new zones such as the ChinaSingapore Cooperation Park and upgraded existing SEZs to take advantage of new opportunities. The South Africa-Zimbabwe Binational Commission agenda, for example, could be developed into a similar model along the framework of the China-Singapore Cooperation Park.

SEZs have contributed significantly to China’s development. They have permitted experimentation with market-oriented reforms, and acted as a catalyst for efficient allocation of domestic and international resources. They have also deepened economic opening by attracting international capital, technology, and technical and managerial expertise that stimulated industrial development and China’s greater integration into the global economy. Since the beginning of the 21st century, China has taken advantage of a large number of regional zones that have been established to stimulate and anchor regional development.

In conclusion, it is worrying to note the pace at which we are dealing with the concept of SEZs as part of our economic reforms is slow. It has taken several years to get to the stage of enacting the Special Economic Zones Act (Chapter 14: 34). Yet the experience with the SEZs develops over time and the economic benefits are immense. It is paramount that the new government paces the implementation of the SEZs trajectory for good of the economy and its growth.

Dr Bongani Ngwenya is based at the University of KwaZulu-Natal as a post-doctoral research fellow and can be contacted on nbongani@gmail.com