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Diamond cutting will increase foreign direct investment

In most developing countries, Zimbabwe included, Special Economic Zones (SEZs) have become the buzz word, as countries see them as a remedy for their economic challenges. Delivering the 2016 national budget, minister Chinamasa highlighted that Zimbabwe’s proposed SEZs (leather and textiles – Bulawayo; petro-chemicals – Lupane; tourism – Victoria Falls-Gwayi-Binga-Kariba; finance – Vic Falls; technology – Sunway City and diamond cutting – Harare and Mutare) are envisaged to increase FDI and spur higher capacity utilisation in the economy.

This is all well and good, but there are several factors that the government has to get right if the positive benefits of implementing the SEZs are to be realised.

An estimated 3 500 SEZs operate in close to 130 countries worldwide, and these are in fierce competition with each other to secure investment. Faced with cut-throat competition, zones inevitably try to specialise; taking into cognisance, their comparative advantages.

Unparalleled fiscal and non-fiscal incentives are also offered up on a platter to attract private capital. Worryingly however, especially for most African countries which produce the same raw material products, benefits from these incentives has been negligible.

General consensus is that among other things, African governments have not been strategic in the way they have approached the issue of SEZs and have been only focused on the short term benefits without adopting a holistic long term view. This is the trap the Zimbabwean Government must avoid falling into.

The key is to build competitive cities and towns nationwide. Consider this, Gaziantep is Turkey’s sixth-largest city. It has a population of 1,54 million, excluding the approximately 300 000 Syrian refugees.

Gaziantep has limited natural resources, and its land is dry and not suitable for agriculture, neither does it have any high-tech clusters.

Yet, its light manufacturing industry firms sell their products in 175 countries globally. Exports in that city increased exponentially in just over a decade from $620 million in 2002 to $6,2 billion in 2013. This too can be Zimbabwe’s reality if it builds truly competitive cities and towns whilst pursuing its SEZ thrust.

Zimbabwe’s envisioned SEZs will need to prime themselves to facilitate the growth of jobs, productivity and incomes through pursuing structural transformation first.

A radical overhaul of existing economic structures is not always necessary. The goal should be to make Zimbabwean cities, and ultimately, the SEZs more efficient and effective.

In Zimbabwe’s case, the challenge is to transform the typical market towns from strictly service centres to production centres through rapid industrialisation.

When this is done, efficiency gains as well as increased productivity can then be pursued. Secondly, cities and towns in Zimbabwe must focus on niche markets in tradable goods and services, instead of retail or public services.

Regional trends show that tradable sector employment growth outstrips non-traded sector growth for instance. In turn, SEZs must not solely be used to attract outside investment, but must also assist with the formation of new businesses and the growth of existing ones.

Innovations in the areas of reforming local institutions and regulations, developing the necessary infrastructure as well as enterprise support and finance are all essential in establishing competitive SEZs. Economic development has to be made an explicit priority, and public-private partnerships between local councils and businesses must be nurtured to carry out the necessary interventions.

Once both the government and the private sector focus on these areas, the SEZs will successfully aid companies in growing jobs, raising productivity and improving the incomes of citizens, and in so doing increase shared prosperity.

SEZs, however, must be viewed only as a piece of the larger puzzle of strategically industrialising and developing Zimbabwe`s economy. – Wires.