Special economic zones: Do we need them?


Clive Mphambela
The Confederation of Zimbabwe Industries hosted a very successful and interesting 2018 Economic Outlook Symposium this past Tuesday, were a number of economic issues were discussed.

Suufice to say, many of the current economic challenges were articulated, with many interesting suggestions for potential solutions. In equal measure, some very tough but pertinent questions were asked.

One notable one, which has absorbed my thoughts for the past three days was a question from the floor where one senior executive in the telecoms sector asked whether there was potential for duplication of effort between the Special Economic Zones (SEZ) Authority and the Zimbabwe Investment Authority.

Her question was pertinent given that these two agencies seem to be pursuing the same goals, and having two of them instead of one seems to create a second layer of bureaucracy and possibly cost, in an environment that is seeking to ease the processes of setting up shop in Zimbabwe as quickly and as cost effectively as possible.

I have taken the time to think through the question and instead of getting answers I began to reaalise that perhaps the discussion on SEZs has so far been left incomplete, to the effect that we should be asking ourselves even more fundamental questions. One such question I would like to explore is the whole concept of SEZs itself.

Given the current state of the economy, do we really need Special Economic Zones, however we chose to define them. Is Zimbabwe well suited to the SEZ concept. Do we have the right fundamentals to sustain and drive an effective SEZ strategy. What are the success factors and what can we learn from those countries where SEZ strategies have either worked or failed?

These are questions I have grappled with in the past few days and I must admit, I still don’t have all the answers. In fact I have more questions than answers.

The most common understanding of SEZs is that they are economic zones that are defined using Geographical locations, or legally delineation or they can be classified by economic sector or activity.

In Zimbabwe, the Export Processing Zones SEZs which we established in the 1990’s were a narrow form of Special Economic Zones. SEZs have been established elsewhere in various other forms, such as Free Trade Zones (FTZs) or Free Zones (FZs), specialized Industrial Estates (IEs) and Urban Enterprise Zones (UEZs) among other forms.

In other countries such as the United States of America, some special economic zones, such as Silicon Valley ( Information Technology), Las Vegas (Gaming ,Tourism and Entertainment) have grown through natural clustering rather than through deliberate or legislative drive.

The typical Special economic Zone therefore thrives on preferential legal status and ring fenced policies and regulations that are more favourable than those obtaining in the rest of the economy. This for me, is precisely where the problems begin.

Why should we not just make Zimbabwe one big SEZs, with favourable policies everywhere? I know some will immediately say that SEZs in the above defined forms, allow government to experiment various policy mixes or rules for different areas or sectors of operation. If these “experiments” succeed then the models can be replicated in the rest of the economy. This kind of rationalization to me is flawed, given that we have tones of evidence on what works and what doesn’t work already.

My view is that Zimbabwe is way too small an economy with way too big a problem for us to worry about creating special enclaves.

Chinas SEZs succeeded as a result of many factors that we do not posses as a country.

Number one, China had a deep reserve of cheap labour, given the large population. Real wages were low and there were hundreds of millions of willing employees to absorb into the SEZs systems without upsetting the cart. We don’t have that advantage.

Secondly, Chinas SEZs were positioned primarily in the coastal regions with access to sea ports. This made the industrial parks hugely competitive, with access to low cost sea transport and abundant labour, china became the world’s factory.

Thirdly, China again due to its huge population, had the consumption base to absorb quite a large portion of the output from its SEZs. Investors had a safety valve so internal markets in china were as important as export markets for the investors.

Unfortunately for us we do not have a big consumption base population wise or even income wise, and we also have a penchant and culture of preferring imports over locally produced goods!!!

Fourth, Zimbabwe has no capacity to build the separate sophisticated legal and institutional frameworks required to sustain a variety of sophisticated business ideas. That will call for more regulatory agencies and therefore higher levels of bureaucracy and potentially costs and rent seeking. What we need is a simple framework for everyone, applicable to all investors.

Do we really have the capacity to have labour laws for investors in Tourism SEZs, different Environment Laws forMines and Chemical factories etc. Are we therefore not going to make the environment more complex rather than simpler for potential investors?

In any case China was able to give a blank cheque to investors, to pollute the environment, abandon labour laws, amongst many other concessions. Factories could pump waste into the environment and spew fumes into the atmosphere without much as a flinch. Wages were sometimes kept so low, working in the Chinese factories for some became a modern form of slavery. Are we prepared to go that far?

In conlusion, we are not big enough. China was able to bend not just its own environmental laws, but fended off attempts to force it to respect international environmental protocols and treaties. We are all aware that the USA has also refused to ratify global climate treaties.

Can we honestly say we will be able to bend backwards to the same extent?

In many countries were SEZs have been attempted, unhealthy and unsustainable enclaves have been created. The impact on the overall economy was not felt at all. Should we not just go all out to make Zimbabwe a great place to invest without creating more problems than we can solve?.

The writer is an economist. The views expressed in this article are his personal opinions and should in no way be interpreted to represent the views of any organizations that the writer is associated with.


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