Last week finance minister Patrick Chinamasa presented the first Annual Budget Review which gave detailed developments of the fiscal year 2016 and 2017’s economic outlook. The document touched on an important developmental thrust of Special Economic Zones (SEZs).

Financial Matters with Tinashe Kaduwo

Special economic zones (SEZs) have taken centre stage across Sub-Saharan Africa with more and more countries establishing or planning to establish SEZs. This is in line with the African Union's Agenda 2063 that describes the acceleration of industrialisation as critical for African countries to reduce poverty. While the majority of African countries established SEZs throughout the 1990s and 2000s, some countries such as Mauritius had already pioneered the use of SEZs as an economic development tool in the 1970s. Many SEZs in Africa are Chinese partnered and focus mainly on the apparel, textile and agro-processing industries, building on the competitive advantages of their economies. These include SEZs in Ethiopia, Ghana, Kenya, Madagascar, Malawi, Mauritius, Nigeria and Seychelles.

In the Annual Budget Review, Finance Minister gave an update on the progress around implementation of SEZs. Chinamasa highlighted that the Government has signed a Memorandum of Understanding with Gansu Provincial Development and the Reform Commission of China on the stimulation of the Sunway City Special Economic Zone. Supporting legislation has already been put in place in the form of the Special Economic Zones Act which was promulgated in the last quarter of 2016. According to the Finance Minister, the Government has prioritised implementation of three projects namely, Sunway City in Harare, Bulawayo Industrial Hub, Special Economic Tourism Zone Corridor stretching from Victoria Falls–Hwange National Park–Binga–Kariba to Mana Pools, Victoria Falls Financial Services Special Economic Zone and Diamond Cutting and Polishing Special Economic Zone in Mutare. If implemented well, SEZs may be a catalyst to economic growth as they bring technology transfer which is part of the solution to antiquated machinery in the manufacturing sector. SEZs will also propel the value addition aspect of the economy as their major thrust is value addition and exports. Proper planning and implementation of SEZs will see reduction in unemployment, value addition uplift and ultimately higher economic growth.

Government’s strategy to use SEZs to embark on an export led economic growth trajectory is therefore progressive and the Government should move with speed in implementation. However, there are conditions that should be met for these zones to be really “special”. The finance minister proposed various fiscal incentives for SEZs which include exemption from Corporate Income Tax for the first 5 years of operation; special initial allowance on capital equipment; exemption from non-residents tax on fees on services that are not locally available; exemption from non-resident tax on royalties and dividends. Capital equipment for SEZs will also be imported duty free whilst inputs which include raw materials and intermediate products imported for use by companies set up in the SEZs will also be imported duty free.

Fiscal incentives from treasury need to be supported by an enabling business environment and infrastructure provisions inside the zones, in order for them to attract investment and consequently, positive spill-over in the economy. The Government need to develop a clear strategy of SEZs development which should be fully integrated in the national industry policy and economic development strategy. SEZs programs should be part of the broad national development agenda and should be designed to best complement and support comparative advantages, as validated through a detailed strategic planning, feasibility and master-planning process.

This is key to ensure viability and long-term sustainability of SEZs based on real market demand. Randomly picking areas to implement zones programs may fail to bear desirable outcomes. A predictable and transparent legal and regulatory framework which ensures clarity of roles and responsibilities of various parties is needed. Such a framework also helps to ensure that the zones attract the right investments and are implemented with high standards. The SEZs Act answers some of the concerns but given the great complexity and potential risks of zone programs, strong and long-term Government commitment is needed to ensure policy continuity and the adequate provision of necessary infrastructure. As such, SEZs should be amalgamated in the country’s long term economic plan.