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Special Economic Zones in Africa
and a few comparative case studies. Given the large investments and high opportunity costs1 of SEZ programs, however, a better understanding the factors that contribute to success is very important. Moreover, the increasing competition for foreign direct investment in the wake of the global economic crisis may accentuate the differences between SEZs that perform well and those that do not. For African countries—in need of FDI to contribute to industrialization, technology access, and learning— getting SEZ investments right is critical. This chapter aims to contribute to overcoming the research gap on the factors that determine SEZ performance by assessing the relationship between SEZ program outcomes and several factors, including the investment climate, wages, incentives, location, management, and market access. It is based on a database of SEZs in more than 70 mainly low- and middle-income countries, complemented by an in-depth survey of SEZ investors in 10 countries with a specific focus on the Africa region (see Appendix C for details on the methodology). While data limitations restrict the analysis to simple correlations, the findings are clear. The investment climate in SEZs—specifically, infrastructure and customs clearance—is strongly correlated with SEZ program outcomes as measured by exports, investment, and employment. But the wider national investment climate and competitiveness are also strongly correlated with SEZ outcomes, as is the scale of the accessible local market. In contrast, the traditional sources of competitiveness for export processing zones— low wages, trade preferences, and fiscal incentives—are generally not found to be correlated to SEZ outcomes. We also find no quantitative evidence of a systematic difference in outcomes between publicly and privately run SEZ programs in our large-country sample. These findings suggest that the emerging policy consensus that recommends focusing on the SEZ investment climate is well-founded. And it underscores the importance of a comprehensive approach to the investment climate, with particular attention to delivering high-quality infrastructure (especially reliable power) and facilitating efficient import and export transactions, along with regulatory and business licensing issues. The findings also suggest that governments must focus their efforts beyond the gates of the zones to ensure that wider aspects of the national business environment are also addressed.
The Investment Climate, FDI, and Trade The investment climate describes the risks, opportunities, and transaction costs involved in investing in and operating a business. It is determined by