Lessons for Uganda from China’s Special Economic Zones

by Admin (Posted on September 29, 2024September 29, 2024)

By Nnanda Kizito Sseruwagi

The government of China established the first four “Special Economic Zones” (SEZs) in the 1980s to act as experimental laboratories for designing and testing new policies and approaches to reduce poverty and grow the economy. They are designated areas in China where economic regulations differ from those of the rest of the country so as to increase trade and investment, promote job creation, and ensure effective administration. They are government-run export enclaves offering taxation, logistical and infrastructure incentives to enterprises, especially those focused on manufacturing and shipping.

One of the most renowned reforms under Deng Xiaoping was establishing four special economic zones along the Southeastern coast of China, with Shenzhen, Shantou, and Zhuhai in Guangdong province and Xiamen in Fujian province. As of 2024, three additional special economic zones have been added. In 2009, Binhai district in Tianjin became mainland China’s seventh special economic zone. These zones are granted more free market-oriented economic policies and flexible governmental measures by the government of China, compared to the planned economy elsewhere. This allows SEZs to utilize economic management which is more attractive to foreign and domestic businesses. Trade was originally controlled by China’s centralized government. However, market-driven capitalist policies are implemented in these special zones to entice foreign investments in China.

Economic policies of SEZs included tax exemptions, reduced customs duties, reduced priced land, and increased flexibility to negotiate labour contracts and financial contracts.

SEZs became destinations for workers from across southern and southwest China, particularly younger women who could earn significantly more for factory work than they could earn in their hometowns.

SEZs were also authorized to develop their legislation. The Shenzhen Special Economic Zone was the most active SEZ for legislative experiments over the period 1979-1990 and these had a significant role in shaping national economic legislation on foreign trade and investment.

Many scholars argue that SEZs played a decisive role in the development of China. Since their adoption, have contributed 22% of China’s GDP, 45% of total national foreign direct investment, and 60% of exports. SEZs are further estimated to have created over 30 million jobs, increased the income of participating farmers by 30%, and accelerated industrialization, agricultural modernization, and urbanization.

SEZs are famed for their peculiar potential for cultivating a form of innovation that is uniquely top-down (supported by the government) and bottom-up (characterized by local problem-solving) while utilizing resources and research at every level.

China has also benefitted from SEZs through foreign enterprises bringing in expertise, technology, and equipment. Consequently, private firms have benefitted from inexpensive labour, a business-friendly environment, robust infrastructure, and China’s large domestic market.

Like China, Uganda could adopt the idea of gazetting special economic zones to attract foreign investment, boost industrialization, and enhance our export potential. We may not have to directly extrapolate the framework of China’s SEZs, but we can modify them to meet our unique socio-economic needs. Indeed, we may just have to tweak how we utilise our industrial parks which are already operational with the support of our Chinese partners.

I strongly believe that Uganda can learn from China’s experience with SEZs by adopting the key elements that made China’s SEZs successful and contextualizing them or domesticating them.

Firstly, we need to be strategic in how we geographically locate our form of SEZs. They should be established in border towns or such areas which have access to key trade routes. For example, Jinja, Mbale, Arua, Kasese, Kisoro, Masaka and other districts with commercial vitality near our borders are good examples of strategic locations for implementing SEZs. Boarder areas near Kenya and Tanzania are more strategic due to their close access to the Indian Ocean through Mombasa and Dar es Salaam ports. We must also invest in critical infrastructure, including road networks, railways, and energy supply, to ensure that these zones are well-connected and operationally efficient. Such infrastructure development would benefit both the SEZs while also contributing to economic development in surrounding regions.

Whereas we have already set up a robust policy environment for incentivising investments such as offering tax incentives, we are still short on streamlining administrative processes and regulatory frameworks that promote investors’ interests. Uganda should learn from China and establish one-stop service canters within SEZs to facilitate business operations and reduce the bureaucratic red tape at the Uganda Registration Services Bureau and URA. These policies must further be stable and consistent to build investor confidence over the long term.

We must build a skilled and adaptable workforce to attract high-value industries in technology and manufacturing. That’s how our form of SEZs can create better-paying jobs for Ugandans.

Uganda’s experimentation with SEZs should be gradual, starting with a few pilot zones in strategically important regions. By closely monitoring the performance of these pilot zones, Uganda can learn from successes and challenges to make necessary adjustments before expanding out to other parts of the country.

China’s experience with Special Economic Zones offers valuable insights for Uganda as the country aspires for socio-economic transformation through industrialization and foreign investment. Uganda can replicate the success of China’s SEZs while adapting the Chinese model to our context.

The writer is a Research Fellow at the Development Watch Center.

 

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