Special Economic Zones as drivers of development of regional value chains in the context of the AfCFTA

Special Economic Zones (SEZs) are a particularly trending topic at the moment. The role of this policy tool was discussed during the fifty-seventh session of the Economic Commission for Africa (ECA) held in Addis Ababa from 17 and 18 March 2025 on the occasion of the Conference of the African Union Ministers of Finance, Planning and Economic Development. At this event, a specific round table explored the role of these important policy tools as drivers of the development of regional value chains in the context of the African Continental Free Trade Area (AfCFTA). A concept note developed by ECA to guide the discussions provides an overview of such tools, revealing that Africa has witnessed a strong growth in their number since 1990 (when there were only 20), reaching the considerable number of 237 in 2020, mainly concentrated in Kenya, Nigeria, Ethiopia and Egypt. However, despite this proliferation, these zones have delivered mixed results, in terms of attraction of foreign direct investment (FDI) and know-how, creation of employment and improvement of trade balances through increased exports. This is due to persistent challenges as weak cross-industry linkages and infrastructure connections. But there is more...

A study conducted by the consulting company GSA (Global Sovereign Advisory) in 2024 revealed that compared to other regions, African SEZs are less specialized and diversified. Moreover, the fact that they over-rely on tax incentives to attract investors (while non-fiscal incentives such as streamlined business registration processes, land and infrastructure benefits, etc., are less used), reduces their competitiveness making them less appetible to investors. The study also argued that most succesful SEZs are those established in countries where the cost of labor is particularly low and that benefit from preferential access to major consumer markets, because of the existence of free trade agreements or preferential concession schemes, such as AGOA. Some examples are Tanger-Med in Morocco, Mauritius and Ethiopia.

The ECA concept note concludes that in order to address some of the above shortcomings, a new generation of special economic zones is emerging in Africa, focused on innovation, sustainability, value chain integration, greater African content and alignment with national and regional development goals. Among them, a standout example are the transboundary (or cross-border) SEZs, i.e., SEZs located at the intersection between two or more countries, where adjoining countries collaborate in attracting investments by coordinating their tax policies and incentives. An example of transboundary SEZ is the Johor-Singapore SEZ, launched in January 2025 by Malaysia and Singapore on an area that is almost double the size of Shenzhen in China. A model that other African countries are trying to develop. Algeria, for instance, in February 2024 launched a project of establishment of transboundary SEZs with all its neighbors. Other examples are the SKBO (between Mali, Côte d’Ivoire and Burkina Faso) or the Moyale cross-border SEZ, mentioned in the UNCTAD report on African Special Economic Zones. But in Africa many of these projects have failed to produce the desired results, while others have simply been abandoned because of lack of polical committment or of funds for completing the necessary facilities (ex. Moyale). More recently, also the Democratic Republic of the Congo (DRC) and Zambia agreed to create a trans-boundary SEZ for production of electric batteries and electric vehicles at their common border. A study conducted by BloombergNEF in 2021 estimated that building a cathode precursor plant in this SEZ will be three times cheaper than in the United States of America. Moreover, battery production is projected to emit 30 per cent fewer greenhouse gas emissions compared with production in China. Moreover, this transboundary zone has the potential to bridge the existing industrial capacities on the continent, given the extensive inter-industry linkages of batteries and electric vehicles, both backward, including with leather, textiles, rubber and iron, and forward, including with vehicle assembly, services, software and renewable energy.

An article published today on The East African provides further details on the challenges posed by the AfCFTA regulation on SEZs. In Africa, most of existing SEZs evolved from Export Processing Zones (EPZs), whose characteristic is that companies settling within their boundaries are obliged to re-export the entire (or most) of their production, while SEZs do not have this limitation. The AfCFTA agreement contains a key provision (art. 9 of Annex II on Origin to the AfCFTA Protocol on Trade in Goods) that governs Special Economic Zones. This article allows goods manufactured within a SEZ to qualify as "originating goods" under the AfCFTA rules, provided they meet the criteria outlined in Annex 2 of the Protocol on Trade in Goods. Moreover, at the 11th Council of Ministers of Trade held in Gaborone, Botswana, from 11-12 February 2023, the AfCFTA Ministers of Trade agreed on a Ministerial Regulation on SEZs (n. 1/2023), to open the African market for goods manufactured within SEZs in the continent to be traded preferentially. The AfCFTA Ministerial Regulation 1/2023 was aimed at addressing the concerns raised by some AfCFTA State Parties (namely, Tanzania and Senegal), in respect of unfair competition caused by products manufactured in SEZs with regard to those manufactured outside of SEZs. The 11th Council of Minister adopted a provision establishing that: “In order to safeguard the domestic market from unfair competition, provisions under the Annex on Trade Remedies, the Competition Policy Protocol, and the Infant Industries Protection provision shall be applicable to the goods from the special economic zones”, adding that “Any state party shall have the right to regulate Special Economic Zones (SEZs) in accordance with their domestic laws.”

Despite their advantages, Bilaterals, a website that is notoriously critical about free trade, especially between countries with different development levels, in July 2024 described the problems associated to SEZs in Africa, complaining that instead than accelerating, they have worsened industrialization in the continent. In reality, the criticism was not addressed at SEZs, but the EPZ, which in Africa have been often abused by businesses, as they have been mostly used for assemblying products, rather than manufacturing new, value-added ones. Moreover, companies have taken advantage of the opacity of SEZs for diverting part of goods manufactured therein to local and regional markets, instead than re-exporting them. In fact, the reduced customs and regulatory oversight within SEZs creates opportunities for illicit activities, such as smuggling, tax evasion, and money laundering. Moreover, this opacity causes risks to public health, as the additives used in producing such products not always pass through quality controls, a behaviour sometimes "morally" justified by the fact that the final product must be exported and sold on foreign markets, not to local consumers. Bilaterals describes the case of Ghana, where some EPZ processing companies are reported to just mix imported inputs like tomatoes and food additives to produce tomato paste which was thereafter sold to countries in West Africa, threatening local production and the health of local consumers.

To avoid such problems and ensure that SEZs under the AfCFTA are competitive, Africa should adopt a unified regulatory framework by reviewing the provision contained in the AfCFTA Ministerial Regulation 1/2023, which states that any State party has the right to regulate SEZs in accordance with its domestic laws. If Africa wants to create a single market (as indicated in art. 3.a of the agreement), having separate regulations at national level does not make any sense. Adopting a uniform regulatory framework for SEZs in Africa would strengthen the overall AfCFTA framework and minimize the risk that African States engage in unfair, "race to the bottom" practices, by offering excessively lax regulations or lower labour and environmental standards to attract investment to the detriment of others. An harmonizaed framework would ensure fair competition and prevent the exploitation of regulatory loopholes. Additional advantages would be the following:

• Attraction of Investment: A harmonized framework for both fiscal and non-fiscal incentives to be offered within SEZs reduces regulatory uncertainty for investors, making Africa - as a whole continent - a more attractive destination for FDI. Moreover, consistent rules across countries simplify compliance, lowering operational costs for businesses operating in multiple SEZs.
• Promotion of Intra-African Trade: unified regulations facilitate the seamless movement of goods and services between SEZs in different African countries, which can foster regional value chains and strengthen intra-African trade, a core objective of the AfCFTA.
• Enhancing Efficiency and Transparency: Standardized procedures and requirements streamline administrative processes, reducing bureaucratic hurdles and promoting transparency. This improves the overall efficiency of SEZ operations and reduces opportunities for corruption.
• Facilitating Knowledge Sharing and Best Practices: A unified framework encourages the sharing of best practices and knowledge among SEZ operators and regulators across the continent. This leads to continuous improvement and innovation in SEZ management.