|Special Economic Zones (SEZs) in Africa: China’s economic development model comes to Mauritius|
|Written by Fiona Dwinger (1) Monday, 02 August 2010 08:08|
With its beautiful palm-fringed beaches and coral reefs, the first picture that is often associated with Mauritius is one of a perfect holiday destination. Indeed, tourism constitutes one of the main sectors in the Mauritian economy, with an estimated 870,000 visitors to the small island nation in 2009.(2) Mauritius is much more than a tourist hot-spot, however. With its stable Parliamentary democracy, institutional and macro-economic strength, Mauritius can be found in the top spots of both the Ibrahim Index of Good Governance and the World Bank’s Ease of Doing Business rankings for African states, as well as boasting the 6th highest GDP per capita on the continent, thus also making Mauritius an attractive investment destination.(3)
Indeed, the Mauritian Government has capitalised on these strengths, following an economic growth and development strategy that encompasses attracting foreign direct investment (FDI) for a diverse number of its sectors, including tourism, textiles, fisheries, business services, telecommunications software and equipment. Uniquely situated in the Indian Ocean and between the continents of Africa, Asia and Australia, Mauritius also hopes to advertise itself as a platform, which can be used by foreign firms to straddle the African and Asian markets.(4) The island’s first Chinese special economic zone (SEZ), the Jin Fei Trade and Economic Cooperation Zone, is to aid in the strategy of utilising an inflow of FDI for economic growth and development.
The special economic zone explained
SEZs are best described as specifically designated geographic areas where economic and commercial policies are more liberal than in the rest of the country, with the aim to attract more foreign investment.(5) The idea is not new, with colonialists having carved out such areas in their territories to function as regional trading hubs as early as the 19th century.
The country to have utilised SEZs most successfully in the last thirty years is, of course, China. With the Asian power having introduced these “experimental enclaves of managed capitalism” in the Eastern coastal regions during the 1980s, the Communist state was able to engage in a form of economic activity that was alien to their own ideology. Thus, considerable economic reforms towards the realisation of a free-market economy could be embarked upon, without any concurrent steps having to be taken in the political system.(6) Hence China’s consistently high growth rates and 50% improvement in its HDI score over the past 25 years, today provide a good example of how rapid increases in economic growth and living standards can occur.(7)
There are certain aspects of China’s developmental model that the more well-governed states of the African continent wish to emulate. These include the focus on developing export-oriented industries and facilitating the inflow of FDI. The SEZ is particularly well-suited in this regard, as the granting of legislative, duty and tax incentives is designed to encourage FDI, technology transfer, the improvement of managerial and labour skills, as well as the promotion of exports.(8)
The main commercial constraints hindering Africa from achieving a rapid expansion of its economies revolve around the costs of doing business (i.e. the lack of transport, communications and ICT infrastructure), the lack of appropriate technologies needed for adding value to and diversifying products, attraction of FDI and affordable finance.(9)
As noted above, the establishment of SEZs can facilitate alleviation of these constraints and thus contribute to economic growth, provided that these enclaves have a multiplier effect on the rest of the economy, such as creating employment opportunities, stimulating the development of local upstream and downstream industries and transferring technology and skills. Thus it is argued that African Governments should emphasise technology transfers and “value added production on local resources” when negotiating with Chinese businesses. In addition, policymakers should take steps to avoid unsustainably rapid urbanisation, as well as an exacerbation of inequality between these hubs and other regions of the country.(10)
Having drawn from its own successful development experience, China thus approached a number of African states during the 2006 Forum on China-Africa Cooperation summit held in Beijing to develop such economic enclaves, aiming to gain investment concessions for Chinese firms in return.(11)
The first of these SEZs is currently under development in Chambishi, Zambia’s copper belt region. In return for China’s building of a US$ 250 million copper smelter, a so-called “anchor investment”, Chinese firms are to be granted tax and duty concessions (such as a corporate tax of 0% for the first five years of operation).(12) The project is expected to attract Chinese investments to the value of US$ 800 million and generate around 50,000 jobs.(13) Strategic considerations present in the Chinese development of SEZs in Africa include securing cobalt, diamonds, uranium and other strategic minerals; creating trading and trans-shipment hubs; and facilitating energy security.(14)
The Jin Fei trade and economic cooperation zone
Although Mauritius is somewhat different from the average sub-Saharan African country in that it is well-governed, has a strong economy and a relatively wealthy population, it does share some of Africa’s key challenges, such as attracting FDI, further diversifying its economy and expanding exports.(15) Thus far, the banking and tourism sectors have been the main beneficiaries of FDI.
Headed by Taiyuan Iron& Steel Group, the Shanxi Group, and the Tianli Group, negotiations for a SEZ in Mauritius’ capital, Port Louis, began in March 2007. Development on the US$ 550 million project began in late 2009 and is expected to be completed in 2016.(16) The Jin Fei Trade and Economic Cooperation Zone in Northern Mauritius is thus the biggest investment by a foreign entity to date. The project, which will cover between 200-500 hectares, is expected to see an inflow of US$ 750 million and create 34,000 jobs (of which 8,000 will go to Chinese contractors) over the next 5 years, be home to 40 Chinese businesses and generate US$ 220 million worth of export earnings annually, thus creating a ripple effect on the entire economy.(17) Infrastructural investments in line with the project include the construction of roads and new town developments, a fishing port and a dam, while the manufacturing sectors targeted include light industrial products, medicines, textiles and electronics.(18)
Taking Chinese strategic considerations into account, Mauritius is particularly well-suited to play host to a Chinese SEZ. Firstly, the island has mostly moved away from a mono-crop economy (although sugar cane still generates 25% of export-earnings), diversifying and creating profitable investment opportunities in export-oriented manufacturing, tourism, business and financial services.(19) Secondly, as noted above, Mauritius has a strong commercial and stable political environment. Thirdly, Mauritius shares long-standing historical and cultural ties with China, with the estimated 30,000 Chinese living on the island constituting China’s largest diaspora.(20)
Finally, the island’s membership in the Southern African Development Community (SADC) and Common Market for Eastern and Southern Africa (COMESA), means that Mauritius may serve as a platform for foreign firms to tap into other African markets due to the preferential market access given to members of these trade and development organisations - thus constituting a potential market of around 380 million consumers.(21) Hence, the SEZ in Mauritius serves as a trading hub aimed at strengthening China’s position in the Indian Ocean rim.
(1) Contact Fiona Dwinger through Consultancy Africa Intelligence's Asia Dimension Unit (