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DIRECTIONS IN DEVELOPMENT Trade Special Economic Zones in Africa Comparing Performance and Learning from Global Experience Thomas Farole Special Economic Zones in Africa Special Economic Zones in Africa Comparing Performance and Learning from Global Experiences Thomas Farole in cooperation with the Investment Climate Department of the World Bank © 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved 1 2 3 4 14 13 12 11 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. ISBN: 978-0-8213-8638-5 eISBN: 978-0-8213-8639-2 DOI: 10.1596/978-0-8213-8638-5 Cover photo: A to Z Textiles, Kisongo EPZ, Tanzania Library of Congress Cataloging-in-Publication Data Farole, Thomas. Special economic zones in Africa : comparing performance and learning from global experiences / Thomas Farole. p. cm. Includes bibliographical references. ISBN 978-0-8213-8638-5 — ISBN 978-0-8213-8639-2 (electronic) 1. Economic zoning—Africa, Sub-Saharan. 2. Enterprise zones—Africa, Sub-Saharan. 3. Export processing zones—Africa, Sub-Saharan. 4. Africa, Sub-Saharan—Economic policy. I. Title. HC800.F373 2011 338.8'7—dc22 2010048276 Contents Foreword xiii Acknowledgments xv Abbreviations xix Overview 1 Chapter 1 Introduction 17 Background and Objectives 17 Methodology 19 Structure of the Report 20 Note 21 References 22 Chapter2 Brief History of SEZs and Overview of Policy Debates 23 Introduction 23 Defining Economic Zones 24 The Evolution of Economic Zones—A Brief History 31 The Scope of SEZs Today—Global Footprint 42 The SEZ Question—Analytical Perspectives 44 Conclusion—The State of the Debate 53 v vi Contents Notes 55 References 57 Chapter3 Assessing the Outcomes in Africa’s SEZs 61 Introduction 61 Defining and Measuring Success in SEZs 62 The Global Experience with SEZs 65 SEZs in Africa 67 Results—Static Economic Outcomes in African Zones 69 Results—Dynamic Outcomes in African Zones 87 Results—Socioeconomic Outcomes in African Zones 96 Conclusions 103 Notes 107 References 109 Chapter4 Which Factors Matter for the Performance of SEZs? 111 Introduction 111 The Investment Climate, FDI, and Trade 112 SEZs and the Investment Climate 114 Hypothesis, Data, and Approach 116 Results—What Factors Determine SEZ Performance? 123 Conclusions 129 Notes 130 References 130 Chapter5 The Investment Climate in Africa’s SEZs 133 Introduction 133 Data and Methodology 134 SEZ Investors and Their Investment Criteria 135 The SEZ Investment Climate—Utilities 136 The SEZ Investment Climate—Transport and Trade Facilitation 139 The SEZ Investment Climate—Business Regulatory Environment 142 The SEZ Investment Climate—Tariffs and Preferences 144 Contents vii The SEZ Investment Climate—Level of Taxes 146 Conclusions 147 Notes 148 References 150 Chapter6 Zone Practices: Policy, Planning, and Strategy 151 Introduction 151 SEZs in the National Trade and Industry Policy Framework 152 From Policy to Practice: Strategic Planning in SEZs 157 The SEZ Legal and Regulatory Framework 165 Institutional Framework and the SEZ Regulatory Authority 182 Partnerships and Private Sector Participation 189 Notes 198 References 199 Chapter 7 Zone Practices: Operations, Management, and Learning 201 Introduction 201 Marketing and Investment Promotion 201 Location, Land, and Development 208 Registration, Licensing, and Administrative Procedures 214 Infrastructure 219 Customs, Trade Facilitation, and Transport 221 Promoting Linkages with the Local Economy 223 Monitoring, Enforcement, and Learning 232 Notes 236 References 236 Chapter8 Policy Conclusions: SEZs in Africa—When, What, and How? 239 Introduction 239 When Are Economic Zones an Appropriate and Effective Policy Choice? 241 What Type of Economic Zone Approach Is Most Likely to Be Effective in the African Context? 248 viii Contents How Can African Governments Plan and Implement Effective Economic Zone Programs? 256 Implications for Future Support to SEZ Programs 263 Research Agenda 266 Notes 273 References 274 Appendix A Country Case Selection 275 Appendix B Large-Sample Dataset 281 Appendix C Survey Methodology 283 Notes 286 Index 287 Boxes 2.1 Colon Free Zone, Panama 28 2.2 Masan Free Zone, Republic of Korea 29 2.3 Mauritius Export Processing Zone 30 2.4 Island of Delos 31 2.5 The WEPZA Debate on Public versus Private Zones 38 2.6 Privatization of Colombia’s Free Zones 40 3.1 Local Entrepreneurs in Latin America’s Free Zones: Catalysts and Catalyzed 76 3.2 Comparative Advantage and Investment in Free Zones 78 3.3 Selling to the African Regional Market 85 3.4 The Decline of Ghana’s Apparel Sector: Limits to Free Zones in the Face of Global Competition 92 6.1 Evolving Economic Zone, Trade, and Investment Policies to Meet Changing Needs in Mauritius 154 6.2 Policy Reversals in Senegal’s Economic Zone Program 157 6.3 Key Elements in the Strategic Planning Process for Economic Zones 159 6.4 Strategic Evolution: Changing Comparative Advantage and Competitive Differentiation in Honduras 161 6.5 The Price of Concentration: Ups and Downs in Lesotho’s Garment Sector 164 6.6 Overlapping Zone Regimes 169