Economic relations between China and African countries have grown rapidly with a steady inflow of Chinese products, small and medium businesses and labour into the African continent. Incoming Chinese commodities and people are seen as a threat to local interests, with China's engagement with Africa frequently maligned as 'neo-colonial.’ It has been argued that China's economic engagement with Africa is limited to its search for natural resources.⁽²⁾

In recent years, China's activities on the African continent began gaining diversity and became more multi-dimensional.⁽³⁾ In November 2006, during a Forum on China-Africa Cooperation (FOCAC) meeting held in Beijing, the Chinese Government pledged to establish approximately five Special Economic Zones (SEZs) in Africa in order to provide support for trade and investment. China has both political and economic interests behind the establishment of SEZs in Africa. Similarly, African countries have a lot to gain from SEZs, as they attract both foreign and local investment. Should this Chinese initiative succeed, it would confirm the successful transfer of the East Asian development model outside the Asian continent. However, previous attempts at creating SEZs on the African continent have mostly ended in failure. This paper examines the possibility and requirements for the success of SEZs in Africa, modelled on China’s special zones.

The Chinese experience

A special economic zone is an economic area that serves as a medium for economic integration within a country or a sub-region. These zones have been instrumental in encouraging economic growth in East Asian economies, where zones also operate sub-regionally, thereby encouraging integration between countries in different stages of development.⁽⁴⁾ The private sector in the form of companies and enterprises largely influence the success and growth of SEZs; however, the Government also has a crucial role with regards to suitable policies, promotion and incentives. SEZs are often more open than free trade agreements, as they are oriented to markets outside the zone.

The earliest SEZs in China were set up in the 1970s and 1980s in Shenzhen, Zhuhai, Shantou and Xiamen to attract foreign direct investment (FDI), develop China’s export market and encourage the influx of new technology.⁽⁵⁾ These SEZs boasted open policies and employed innovative policies that, if successful, were implemented in other provinces. In China, foreign trade and investment was directed to and liberalised in SEZs before they were extended to more locations, usually after positive results.⁽⁶⁾ SEZs have been partly responsible to China's impressive growth and have played an important role in China's initial economic reforms. Foreign interests in Chinese SEZs led to upgrades in several areas, including technology and industry, which were transferred to Chinese companies. Shenzhen and Xiamen, in particular, have been very successful case studies in the effectiveness of SEZs. These zones drew whole infrastructural investment from local Governments and for a while were favoured with different tax policies.⁽⁷⁾ The grand success of initial SEZs led to the establishment of more zones and currently China is home to at least a hundred zones in different varieties.⁽⁸⁾

China has also partnered with other countries to develop zones within the country and has built zones with overseas parts in East and Southeast Asia. In the 1990’s, working with Singapore, two industrial zones were developed in the Chinese cities of Suzhou and Wuxi. Initially, Singapore was in charge of the zones in terms of marketing and developing until about a decade after when local Chinese companies took over, becoming major shareholders. Thus in the first stages of these initiatives, Singaporean parties held interests, before the Chinese took over.⁽⁹⁾

As China's development rapidly increases, so too do labour costs. The Chinese Government wants to move industries such as textiles and leather goods overseas, where labour costs are relatively cheaper and where industries can be closer to raw materials.⁽¹⁰⁾ There is also a high demand for African goods in emerging markets and the need for African countries to develop infrastructure. The establishment of SEZs in African countries with support from the Chinese Governments has the potential to greatly impact the development of African countries. SEZs have the potential to transfer technological know-how and generate local employment in the African countries they are in.

China is the world's expert in using SEZs as tools for development and attracting foreign investment and as such, China is more suited to school African countries in this technique as part of their attempt to export a Chinese development model.⁽¹¹⁾ It is possible that SEZs can be used to create investment opportunities in Africa like they did in China, with China acting as a guide. The success of the SEZs in Africa will show the efficiency of the East Asian developmental state model in countries outside the Asian continent. It would also mean a shift from relying on the export of raw materials to the export of goods manufactured in Africa.

Implementing the Asian development model in Africa

The development of SEZs in Africa seems to hold great potential, and with their ability to create jobs and attract foreign investment, Chinese SEZs may drastically reduce poverty rates in Africa. The increased industrialisation that SEZs can bring will be a positive step for the African countries they operate in and for encouraging sub-regional growth.

Following the announcement by FOCAC to establish SEZs on the African continent, China’s Ministry of Commerce hosted tenders and proposals to determine which African countries the SEZs would be situated in. Initially, seven SEZs were chosen in six African countries including Egypt, Algeria, Ethiopia, Mauritius, Nigeria and Zambia. The project in Algeria has been invariably suspended, while both Nigeria and Zambia will have two SEZs each. Each of the seven proposed SEZs will specialise in a particular field, but the majority will focus on manufacturing and while some are completely owned by Chinese, others are joint-ventures with local Governments.

Free trade agreements and other forms of SEZs, such as industrial or export processing zones are not new to the African continent. However, their growth has been hindered by inconveniences such as poor infrastructure, lack of innovation and technology and absence of Government support. Save a few countries, such as Mauritius, Kenya and Madagascar, the general result of SEZs in Africa has been very disappointing. SEZs depend on local and foreign investment to excel and there have been difficulties in attracting foreign investment to African SEZs, due to the perceived poor business environment in several countries. Poor development of infrastructure led to the failure of previous zones in Africa, along with inefficient local management, administrative weaknesses, insufficient policies and incentives, promotion and maintenance.⁽¹²⁾ SEZs thus need to be part of the country's trade and economic agenda and they should not be left to thrive on their own.

As in China, where private enterprises supported the growth of SEZ’s, the Chinese Government, on its part, has let Chinese companies take the lead in developing SEZs in Africa. The Chinese Government has not directly involved itself in the design or intimate operations in the zones. On the other hand, the Chinese Ministry of Commerce and Chinese embassies in Africa have promoted interest in these zones by encouraging investment and recommending the zones for investment. Similarly, consultations with local Governments on topics such as infrastructure and responsibilities were spearheaded by Chinese companies and embassies. This suggests that private companies are the main actors in African SEZs, which highlights the business-oriented nature of the initiative.

In China, local Governments played a crucial role in making SEZs in their provinces attractive to foreign investment. As these SEZs are spurred by Chinese interest, it is already certain that some foreign investment will be pouring into them. It may not be advantageous, however, to rely on foreign investment from one country and African special zones will need to attract investment from other parties for increased capital and a diverse range of new technological ideas. Here, cooperation between countries in the global South may make a difference. Already other Asian powers are showing interest in creating similar projects, with Indian and Arab organisations having expressed interest in hosting similar projects in Kenya and Mozambique.⁽¹³⁾

African Governments naturally have their own role to play with the SEZ, as it is up to them to provide incentives to companies willing to operate within local SEZs, such as reduced tax charges and tariffs on raw materials. Local Governments are to actively encourage development within the zones and integration with local economies. Infrastructural development is also very crucial to the success of SEZs and African Governments will have to provide a steady supply of electricity, water, sanitation, gas and good roads in the areas surrounding the zones.

For the Chinese model of SEZs to succeed in the chosen African countries, both local and foreign companies have to form a sustainable partnership. Services such as banking and the provision of local supplies will be provided by local companies while, depending on the host country's policies, locally owned small and medium businesses can thrive within the zones. The participation of African companies is extremely important, as in the future it will mean an easier transition from foreign to local management and integration with local economies.

Both Chinese and African interests have to work together and communicate easily in the partnership. Already, knowledge has been transferred as African officials from Zambia, Nigeria and Ethiopia were invited to attend workshops on supporting and managing SEZs in China.⁽¹⁴⁾ However, only direct involvement and experience will ensure that the zones work on the African continent. Companies from China’s successful SEZs such as Nanjing Jiangning Development Zone in Lekki, Nigeria and Suzhou Zhangjiagang Free Trade Zone in Ethiopia, participated in the design of zones in the respective countries.⁽¹⁵⁾

Conclusion

Currently, only a few of the proposed SEZs are in operation, while most such as the Lekki Free Zone and Ogun Guangdong Free Trade Zone remain in advanced stages of construction. There is still much uncertainty on how the zones will turn out, and if they will be as efficient as Chinese SEZs. However, there are a few key points that need to be considered for the success of the Chinese SEZs in African countries.

For the China-led SEZs in Africa to be truly successful, they would need to create local employment, encourage exports and transfer knowledge on technological issues. African Governments will need to enforce existing standards on labour and sustainability on the zones, and encourage local companies to set up activities in the SEZs. SEZs need positive economic conditions and stable environments to thrive. It is possible that the lack of adequate infrastructure on the African continent may hamper the growth of the SEZs. Interestingly, while the Chinese Government is not responsible for maintaining infrastructure within the zones, they have taken on unrelated infrastructure projects in countries where the zones are to be established.

Fears that the Chinese-led African SEZs may not promote sustainable development by essentially making the zones limited to Chinese investment and products continue to persist. Some feel that Chinese companies may use the established SEZs in Africa as a means to circumvent bans on Chinese products from the European Union (EU) or North America. On the other hand, they can also benefit from EU and American regulations on trade with Africa.⁽¹⁶⁾ The unstable situation in some of the African countries chosen has also caused some worry, and there is no clear information on how the revolution in Egypt have affected the zone located there.⁽¹⁷⁾ Generally speaking though, the Chinese Government has continued exploration for unexploited sectors on the African continent due to the belief that Africa is currently approaching a period of relative stability and peace.⁽¹⁸⁾ As political stability is key to the success of SEZs, it is possible that recent events in Egypt could negatively impact the development of other Chinese-backed SEZs in Africa. The majority remain under construction, with only the SEZs in Egypt and in Chambishi, Zambia currently in operation, though they simultaneously remain under construction.

China has established an impressive record of successes in using SEZs to promote growth and development. By choosing to set up and support SEZs in seven African countries, China is attempting to make the economic model work outside Asia. The success of these zones is crucial to both parties, as it would bring economic growth to the chosen African countries and would mean a successful transplant of the Asian developmental model in Africa. However, issues such as political instability and poor infrastructure in the areas around the zones need to be overcome for good results to be attained.

NOTES:

(1) Contact Rafeeat Aliyu through Consultancy Africa Intelligence’s Asia Dimension Unit ( asia.dimension@consultancyafrica.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it ).
(2) Brautigam D and Xiaoyang T, ‘African Shenzhen: China’s special economic zones in Africa’, Journal of Modern African Studies, 49(11), pp. 27-54, 2011.
(3) Loro Horta, ‘China Building Africa’s Economic Infrastructure: SEZs and Railroads’, The Jamestown Foundation, 22 July 2010, http://www.jamestown.org.
(4) Peng, D, ‘Subregional Economic Zones and Integration in East Asia’, Political Science Quarterly 117(4), 2002.
(5) Yeung Y, Lee J and Kee G, ‘China’s Special Economic Zones at 30’, Eurasian Geography and Economics, 50(2), pp. 222-240, 2009.
(6) Dollar D, ‘Lessons from China for Africa’, The World Bank East Asia and Pacific Region China/Mongolia Department, 2008.
(7) Ibid.
(8) Brautigam D and Xiaoyang T, ‘African Shenzhen: China’s special economic zones in Africa’, Journal of Modern African Studies, 49(11), pp. 27-54, 2011.
(9) Brautigam D, Farole T and Xiaoyang T, ‘China’s Investment in African Special Economic Zones: Prospects, Challenges, and Opportunities’, Poverty Reduction and Economic Management Network (PREM), 2001.
(10) Brautigam D and Xiaoyang T, ‘African Shenzhen: China’s special economic zones in Africa’, Journal of Modern African Studies, 49(11), pp. 27-54, 2011.
(11) Brautigam D, Farole T and Xiaoyang T, ‘China’s Investment in African Special Economic Zones: Prospects, Challenges, and Opportunities’, Poverty Reduction and Economic Management Network (PREM), 2001.
(12) Ibid.
(13) Loro Horta, ‘China Building Africa’s Economic Infrastructure: SEZs and Railroads’, The Jamestown Foundation, 22 July 2010, http://www.jamestown.org.
(14) Brautigam D and Xiaoyang T, ‘African Shenzhen: China’s special economic zones in Africa’, Journal of Modern African Studies, 49(11), pp. 27-54, 2011.
(15) Ibid.
(16) Brautigam D, Farole T and Xiaoyang T, ‘China’s Investment in African Special Economic Zones: Prospects, Challenges, and Opportunities’, Poverty Reduction and Economic Management Network (PREM), 2001.
(17) Loro Horta, ‘China Building Africa’s Economic Infrastructure: SEZs and Railroads’, The Jamestown Foundation, 22 July 2010, http://www.jamestown.org.
(18) Ibid.

Written by Rafeeat Aliyu ⁽¹⁾