At a Glance
- SEZs face many of the same constraints that are present in the wider economy.
- Replicating the success stories of some early SEZs may no longer be possible given the global economy’s changing macroeconomic, technological, and regulatory environment.
- Expenditure Performance Review: Export Promotion in the IDZs (Megan Govender, Yash Ramkolowan, Matthew Stern)
- Special Economic Zones: Lessons for South Africa from International Evidence and Local Experience (Antony Altbeker, Katie McKeown, Ann Bernstein)
- Special Economic Zones in Africa: Comparing Performance and Learning from Global Experience (Thomas Farole)
This resource elaborates the costs and constraints of the design and implementation of industrial development zones in South Africa. To that ...
Exclusively focused on South Africa, this resource describes the approach of creating Special Economic Zones (SEZs) to accelerate economic ...
SEZs, despite their special nature, face many of the same constraints that are present in the broader economy. The size and capability of the domestic economy determine which types of investments are realistic, and the overall business climate may supersede any investment benefits available in zones. Weak investment climates tend to force the use of ever-greater incentives to offset competitiveness gaps and investor risks; this strategy is expensive and may not be sustainable in the long run. Extractive industry value chains are also prone to changes in commodity pricing, which can result in sudden changes in investment levels.
There are also constraints specific to SEZs. One of the most common is overconfidence among policy makers and implementation partners, who may unrealistically expect that an SEZ will become an immediate success. This expectation tends to result in too much land being developed too quickly—which immediately places pressure on the SEZ’s financial viability.
Replicating the early success stories of the Dominican Republic, Mauritius, and South Korea—where SEZs spurred industrialization and job creation—may not be possible on the same scale and scope today, given the global economy’s changing macroeconomic, technological, and regulatory environment. Overconfidence can also extend to the types of investments the SEZ attracts, resulting in an overestimation of job creation, technology used, and linkages. Political and economic pressures also often mean that additional (and often unsuitable) goals are attached to the SEZ program. A common goal is regional development to decrease spatial disparities, but the same factors that explain the lag in regional growth (like low productivity and poor market access) are also likely to negatively affect the SEZ program.
Land is often the main government contribution to an SEZ project; therefore, the location of the SEZ is influenced by what the government owns or can access. In some cases this can lead to inappropriately sized projects and/or poor location choices.
SEZs are meant to overcome administrative burdens faced in the wider economy, but they can be constrained by the same lack of capacity or coordination among government entities that affects a country’s general economy. Clear and streamlined procedures help reduce investors’ administrative burden it is also helpful to streamline approvals that originate outside an SEZ. For example, to overcome the problem of delays in approving SEZ licenses, Senegal adopted a law so that authorization is granted by default if the applicant receives no response within 30 days.