Key highlights
- Free trade zones (FTZs) have been established across Africa since the 1980s to encourage investment and create jobs, offering tax holidays, duty-free import/export of goods, and relaxed regulatory requirements.
- Despite the potential benefits of FTZs, African countries face challenges, including the lack of basic infrastructure, bureaucratic red tape, and a lack of skilled labor.
- The planned implementation of the African Continental Free Trade Area (AfCFTA) agreement presents an opportunity for African countries to leverage FTZs at the continental level and promote economic integration, increase trade and investment flows, and create jobs.
Free trade zones (FTZs) are not new to Africa. The concept of free zones in Africa dates to the 1980s, and since then free zones have been established across the continent to encourage investment and create jobs.
Morocco, for instance, established several free zones, including the Casablanca Finance City, which has attracted some international financial institutions. Kenya has also established several free zones, including the Mombasa Port Special Economic Zone, which aims to promote economic development in the region.
In Nigeria, the first free trade zone was established in 1992. Since then, the country has established several other FTZs across several locations, including Lagos, Port Harcourt, and Onne.
These FTZs offer a range of incentives to investors, including tax holidays, duty-free import and export of goods, and relaxed regulatory requirements.
Limited gains
Despite these, African countries are yet to fully harness the potential of free zones for economic gains. For instance, in the 30-year history of free zones in Nigeria, cumulative investments attracted stood at about $20 billion, while 25,000 jobs have been generated against the scheme’s projected capacity for 300,000 direct jobs. This is according to the Minister of Industry, Trade, and Investment, Adeniyi Adebayo.
- Industry stakeholders believe that what Nigeria has gained is quite insignificant compared to what it could have gained. And this is true when compared with what other countries that set up free zones are gaining as economic benefits.
- The United Arabs Emirates (UAE), for instance, emerged as the destination of choice for global trade and investment about 30 years after its first free zone was established in 1985, in the Jebel Ali area.
- Dubai’s FTZs also generated a combined total of $118 billion in trade value in 2017. The Jebel Ali Free Zone (JAFZA)—established in 1985 —accounts for almost 32% of the total FDI flowing into the UAE and roughly 24% of Dubai’s annual Gross Domestic Product (GDP).
- In 2015, JAFZA alone generated trade worth $87.6 billion.
Challenges of free zones in Africa
Despite its huge potential benefits, free zones in Africa face several challenges that hinder their effectiveness. One of the biggest challenges facing free zones in Africa is the lack of basic infrastructure such as reliable electricity, water, and transportation. This makes it difficult for businesses to operate efficiently and discourages investment.
Another challenge is the bureaucratic red tape, including lengthy permit processes and complex regulations, which discourages investment in free zones.
Again, the lack of skilled labour and training opportunities. This limits the potential for economic growth and limits the ability of businesses to take advantage of the benefits of free zones.
Solutions to the challenges
Suggesting solutions to challenges hampering free zone benefits to African countries, the CEO of Nigerdock, Maher Jarmakani, emphasised the need for African governments to prioritize investment in infrastructure development in free zones.
- “There’s a need for greater collaboration between private and public players to create an enabling environment to foster sustainable economic growth,” he said.
As the CEO of a leading Nigerian maritime and logistics company operating an integrated port terminal and free zone in Lagos, Jarmakani, who also has oversight of promoting Snake Island Integrated Free Zone (SIIFZ) added that they attract businesses to invest and establish operations in Nigeria by ensuring there is a low cost of entry, ease of doing business, and a skilled workforce.
He also emphasised the need for governments to streamline permit processes and simplify regulations to make it easier for businesses to operate in free zones. This, he suggested, can be done by implementing e-governance systems and using technology to automate processes.
Leveraging the continental free trade agreement
With the planned implementation of the Africa Continental Free Trade Area (AfCFTA) agreement, which was signed by 54 of the 55 African Union (AU) members, countries on the continent now have another opportunity to harness the benefits of free zones at the continental level.
- The AfCFTA represents the largest free trade area in the world, covering a market of 1.4 billion people and a combined GDP of $2.5 trillion. It aims to create a single market for goods and services, leading to increased trade and investment flows between African countries, as well as reducing the costs of trade and promoting economic integration across the continent.
- The AfCFTA also aims to address some of the key challenges facing African economies, including low levels of intra-African trade, limited economic diversification, and a lack of competitiveness in global markets. By removing trade barriers and promoting investment, the AfCFTA is expected to help African countries grow their economies, create jobs, and increase prosperity for their citizens.
- According to Jarmakani, African countries must work together to ensure that the AfCFTA succeeds as it is the only way to shift the paradigm from the current situation where the largest trades by most African countries are with non-African countries.
- “There’s a lot of capacity on the continent for transformation, turning raw materials into manufactured goods. A lot of it happens outside of the continent. However, the right incentives to invest in infrastructure, manufacturing, and needed supply chains are going to be helped by the free trade agreement. So, there is a huge potential behind it,” he said.
Bottomline
There is no doubt that African countries still have a lot of work to do to fully harness the potential of free zones for economic growth. With the right policies and by offering a favourable investment climate and promoting economic diversification, free zones can help to create jobs, increase exports, and reduce the dependence on natural resources.
Free zones have the potential to drive economic development in Africa and improve the lives of its people. These can be fully realised with the right and deliberate actions.