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Special Economic Zones in Africa
impossible, and where the investment climate has so few constraints that the cost to government of maintaining a special trade and investment regime for the program is likely to outweigh any incremental benefits. Using economic zones as an enclave may be most tempting when the domestic investment climate is a complete disaster, but the findings from this report raise some doubts about this use: A zone is unlikely to be sufficient to protect investors from the investment climate around them, particularly if it is unable to fully free itself from the influence of the state. However, further research is needed to understand the role of SEZs in postconflict environments—it is likely that the specific context of a postconflict environment will have a bearing on the potential of zones to catalyze investment and private sector activity. If a dynamic private sector existed before the conflict and the most pressing investment climate concerns relate to infrastructure, zones may have a strong catalytic effect. But in the absence of a strong domestic private sector and where the state is weak (or powerful but predatory), SEZs may struggle unless they can almost fully circumvent the state. In contrast, if an economy operates well on most aspects of its investment climate and land is not an issue, natural, efficient, and broad patterns of investment and agglomeration should occur, making economic zones largely unnecessary. There are three exceptions to this in high-income countries: (1) the government uses economic zones as a tool of regional policy to encourage investment into lagging regions; (2) the government uses economic zones as a tool of sector-specific industrial policy to attract FDI that would otherwise invest offshore (e.g., trade zones that provide substantial incentives to host mainly foreign automotive assembly operations in the United States); and (3) the government uses economic zones to provide collective goods and promote clustering in new and advanced industries (e.g., the promotion of technology parks). In the first two cases, zones are unlikely to deliver a positive net benefit to the national economy. In the third, the argument is less clear, as market uncertainties and coordination challenges may make economic zones a valuable tool. Between the two extremes, the evidence from many years of economic zone research suggests that zones can play an important role in helping catalyze processes of economic transition. Where national investment climates are poor, investors are attracted primarily by low wages and fiscal incentives, although administrative efficiencies and quality infrastructure also play an important role. However, as the national investment climate improves, the likelihood of zone success and the potential impact of a zone program should also improve, and the main contribution of the