China is the model to follow, but there are challenges to creating successful special economic zones in Kenya

Special economic zones facilitate speedy socioeconomic growth of a country and are areas where business activities and trade laws and regulations are different from other parts of the country.

The aim of SEZs is to increase trade and investment, create effective management and, above all, create job opportunities. For this to happen, there is a need to develop and implement facilitative policies on investment, taxation, tax holidays, lower tariffs, trading, quotas, customs and labor regulations.

China offers the best model for SEZs. It has more than any other country in the world, using them successfully to attract investment and promote exports.

The overall goal of Kenya's Vision 2030 development strategy is to increase GDP by at least 10 percent a year and propel Kenya to become Africa's industrial hub. However, to transform the economy, the manufacturing sector needs to grow steadily from 6 percent in 2013 to 10.2 percent by 2017.

To this end, the Kenyan government has focused on export-led growth through SEZs, industrial clusters, and parks for small and medium-sized enterprises. It is also aggressively exploiting market opportunities through regional integration and export opportunities in African states outside the East African Community, in the Common Market for Eastern and Southern Africa, and in the global market.

SEZs are used to create employment, stimulate growth in the agricultural sector and offer significant opportunities for export expansion.

Kenya recognizes the importance of SEZs, and after extensive discussions with stakeholders, the SEZs Act got presidential assent last year. The aim of the act is to instill confidence in investors and signal the government's commitment to stable SEZ policy.

In addition, Vision 2030 puts much emphasis on SEZs, as the strategy aims to move the economy up the value chain and create a robust, diversified and competitive manufacturing sector.

In Mombasa and Lamu, plots of land - 2,000 square kilometers and 700 sq km, respectively - have been identified as suitable for SEZs. Consultations on a site in Kisumu are ongoing.

The specific objectives of the SEZs Act are to attract domestic and foreign investors, expand and diversify production of goods and services for domestic and export markets, generate additional economic activity, develop infrastructure facilities and promote added value.

Moreover, the zones are expected to promote local entrepreneurship, create jobs, enhance technology development and innovation, and promote rural and regional industrialization by exploiting comparative advantages of local resources.

It's expected that the act will trigger a large inflow of foreign and domestic investment toward infrastructure and productive capacity, leading to generation of additional economic activity and employment opportunities.

The SEZs can only succeed, especially in Africa, where there are no arguments about the range of incentives and where policy is underpinned by a robust industrial policy.

Location of an SEZ is key, however. The trend is to locate them at the coastal area to allow manufacturing firms to minimize transportation and storage costs.

Challenges facing SEZs in Kenya and Africa as a whole include ineffective and opaque legal and regulatory frameworks, limited positioning of SEZs to leverage a country's comparative advantage, and lengthy incubation periods, particularly when dealing with political elites who want results in the shortest time possible due to political pressure.

Governments need to be patient and provide consistent support to SEZs over a long time period and to remove inadequate horizontal infrastructure and unreliable power supplies.

Other challenges include inadequate participation from dynamic local entrepreneurs due to a lack of or limited regulatory framework; a lack of high-quality port and road connections and ineffective on-site customs services; land compensation issues and compliance with labor and national environmental standards; inadequate resources and a low level of political commitment; and unsynchronized approaches to SEZ legal and regulatory frameworks and a absence of commitment to bilateral and regional trade agreements, which has led to low or no regional and intra-Africa trade.

Benefits of operating within SEZs are well known: everyone benefits. China has been able to use these zones to slowly change people's lives.

However, there is the risk that countries abuse the system and use it as an excuse to retain protectionist barriers in form of taxes and fees. In addition, SEZs can create excessive bureaucracy that channels money away, especially from developing countries.

Without doubt, we in Africa, and indeed Kenya, must accept and admit that SEZs have delivered socioeconomic development to Southeast Asian countries and consequently changed people's lives for better. Our best bet is to embrace and implement the SEZs Act.

It is now and not tomorrow that we must, with our partners, open SEZs in Mombasa, Lamu and Kisumu. The fundamental benefit is that they transform people's lives.

The author is a lecturer at the University of Nairobi School of Business and former director of the Kenya Vision 2030 directorate. The views do not necessarily reflect those of China Daily.

(China Daily European Weekly 09/16/2016 page9)