The establishment of special economic zones (SEZs) dates to the 1950s and as globalisation deepened over the years, they found prominence around the world as an instrument that governments use as part of national development plans to bolster economic development, promote industrialisation and provide a platform for prospective local/international investors to access local and regional markets.
The zones are portions of a nation’s territory designated for certain types of economic activities and are supported by laws and regulatory frameworks that commonly differ from those that are in effect in the rest of the country.
According to PwC, in a paper looking at the full potential of SEZs, there were 845 zones globally in 93 markets in 1997, which ballooned to 5 400 zones in 147 markets in 2018. In Africa, about 189 SEZs are in operation as of 2019, while 57 SEZ projects have been declared as being nearing completion. In 1997, the South African government adopted a framework for its special economic zone programme, which was later reviewed and translated into what is now known as the Special Economic Zones Act 16 of 2014. This Act provides for the designation, promotion, development, operation and management of SEZs.
There are 11 SEZs designated in South Africa, with five of them operational. When guided by sustainability and supported by conducive policies, these zones aid in promoting economic growth, generating jobs, increasing and diversifying exports and speeding up the industrialisation of an economy at costs that most governments consider to be reasonable.
The Africa Economic Zones Organisation (Aezo) reported that between 2015 and 2020, African SEZs were responsible for the creation of more than 41 million jobs in the agriculture sector, the majority of which are in agro-processing rather than farming. More than 14 million new jobs have been added to the industrial sector, primarily in the industries of construction, manufacturing, mining and utilities. More than two million new jobs have been created in highly skilled industries including telecommunications and digital goods and services. Additionally, SEZs have significantly enhanced foreign direct investment flows to Africa, which rose by 11% to $46-billion in 2018.
While there are examples displaying successes of SEZs that are operational and help in meeting countries’ quantitative growth goals and socioeconomic objectives in the continent, the process of establishing a special economic zone is one met with difficulties. The zones have a mixed history despite the benefits and obvious success stories.
In many circumstances, the costs of zone infrastructure and maintenance outweigh the advantages. Chapters 3 and 5 of the 2018 World Investment Report highlight modern problems affecting the establishment of economic zones and the importance of embracing sustainable development.
SEZ operations are increasingly difficult in the modern world. Zones must reconsider their competitive advantages as a result of the new industrial revolution, as conventional locational advantages are losing significance. They also need to conduct business in a way that supports the United Nations’ sustainable development goals and is more socially and environmentally responsible.
For successful implementation, the government must cooperate with other pertinent parties such as state agencies, inter-governmental organisations, development partners and civil society organisations, including those from the national, regional, local and private sectors. According to Aezo’s African Economic Zones Outlook, most recent research and examples of best practices suggest that successful SEZs adopt parallel economic programming (feasibility studies, market analyses, demand forecasts, business cases), as well as physical programming (site assessments, infrastructure reviews), supported by a strong organisational framework (SEZ regime, incentives and developer model).
These difficulties and best practices are not unique to the South African context; the establishment of the Musina-Makhado SEZ (MMSEZ) in Limpopo provides an example of these common difficulties, the need for strengthened stakeholder coordination and the promotion of business operations that are socially and environmentally responsible.
Since the government announced the designation of the MMSEZ in 2018, the development of the zone has been scrutinised and widely criticised, mostly on issues related to the environmental impact assessment, foreign investments to power the clusters, water insecurity, socioeconomic benefits and stakeholder consultations. More recently, the memorandum of understanding that the United Nations Development Programme in South Africa signed with MMSEZ in March 2022 came under fire when a group of concerned environmental activists questioned the UNDP’s involvement.
The UN system recognizes SEZs as key entities to support sustainable economic development in developing economies under the UN Conference on Trade and Development (UNCTD). It is for this reason that the UNCTD launched the Global Alliance of Special Economic Zones (GASEZ) earlier this year to drive the modernisation of these zones around the world and maximise their contribution to the sustainable development goals. Achieving this transformation requires a strong coordinated collaboration between public and private partners during the design, setup and operational phases in the development of zones.
With South Africa implementing its National Development Plan, SEZs can help address the triple development problems of inequality, poverty and unemployment. Development agencies such as the UNDP, considered the UN sustainable development goal integrator, becomes a critical partner to the government to harness its SEZ programme to respond to development problems and advance a new generation of special economic zones for sustainable development.
The UNDP’s involvement with the MMSEZ is part of a UNDP-wide commitment to the South African government to promote socioeconomic development that is environmentally and socially sustainable. The memorandum of understanding formalises a non-binding partnership that stipulates intent and commitment between two entities and outlines how they will cooperate to promote environmental sustainability, address climate change and empower local residents to participate in socioeconomic activities.
In addition to advancing development in Limpopo, the UNDP intends to harness the opportunity provided by the MMSEZ project to advance the African Continental Free Trade Area Agreement (AfCFTA), an initiative supported by UNDP Africa, by introducing trade corridors and gateways between South Africa and neighbouring countries.
The UNDP has been working in the Vhembe District in Limpopo since 2016. Through the Global Environmental Facility Small Grants Programme, the UNDP has been supporting people through more than 20 environment and climate change-related projects varying in scope from the protection of natural sacred sites, rehabilitation of wetlands and fountains, addressing deforestation and overharvesting of indigenous plant species, and reducing energy costs and indoor pollution through the introduction of biogas digesters and eco-briquettes to aquaponics and climate smart-agriculture projects.
For the UNDP to influence a developmental project and steer it in a direction of environmental and social sustainability, a formal instrument of engagement is required. The memorandum of understanding allows the UNDP to work directly with the affected stakeholders and those responsible for driving the developmental trajectory. It enables the UNDP to influence the areas of cooperation outlined in the memorandum and support the MMSEZ to mainstream human and environmental rights.
It is through such agreements that we are working with civil society organisations, local residents, the media and other stakeholders to ensure that the MMSEZ leaves no one behind in the socioeconomic development benefits, is not harmful to the planet and sets an example for the future development of similar SEZs. This is an invitation for all of us to join forces towards achieving inclusive and sustainable development for the people of Limpopo.
Ayodele Odusola is the resident representative for the United Nations Development Programme in South Africa and director for the UNDP’s Africa Sustainable Finance Sector Hub
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