The first aspect I want to say is that there are different models in all 54 African countries, and some models work for some countries and don't work for other countries.
Algeria, Mauritius and Ethiopia both have state run monopolies but electrification rate in Algeria & Mauritius is practically universal while Ethiopia is 55%.
Egypt, South Africa, Cameroon all have minor competition in private sector energy generation (especially renewables) but only 71% of Cameroonians have electricity access while in Egypt its practically universal.
Ghana, Morocco, and Nigeria have significant private competition. In fact in Nigeria there are mainly private generators, but TCN handles transmission.
Morocco has universal access, Ghana 85% and Nigeria is at 61%
Each country has there own bottlenecks, and at the end of the day it's too difficult to come up with a general solution for Africa because they regulate generation, transmission, and distribution differently.
This is a long way of saying I don't know a generation solution, and there's enough variation within African countries that one solution may be good for one country but terrible for another.
In South Africa, the coal powered, state owned Eskom is so bad with providing electricity, it has forced a private sector solar boom in South Africa. 1000 MW to 5000 MW in 2 years. But that mega wattage is so small that having a massive boom should be expected:
There's also major solar stuff going in in Nigeria, Tunisia, Egypt, Kenya, and a couple others.
This is great, but as always the issue with solar is when the sun isn't shining so you need batteries or natural gas/coal to deal with the intermittency issue.
Fascinating. Although I have no knowledge of, nor background in, business or economics, I’m always very interested in learning the ways individuals are working within their own homelands to grow an economy. I hope that makes sense. And although the subject matter is dense and beyond me, you write with such clarity that I want to continue to follow along. Thank you!
Great read. Capital allocation & attractions with aligning incentives is something I'm just really starting to wrap my head around. The structure of initial investment, ROI, risk and potential future profitability is a tough balance.
I am not sure what traditional financial dogma/thinking is, but understanding corporate finance or accounting is much better than the made up math that some politicians talk about.
Traditional development models, (total newbie) compared to what is needed on the ground for more shared prosperity that isn't exploitative. My sense is new agreements needed to be considered.
Agreement on Subsidies and Countervailing Measures (ASCM): The WTO's ASCM, which came into effect in 1995, restricts the use of subsidies, including those offered by EPZs. This agreement limits the ability of EPZs to offer tax breaks, duty-free imports, and etc,
Agreement on Trade-Related Investment Measures (TRIMs): The TRIMs agreement, also implemented in 1995, prohibits WTO members from applying investment measures that restrict or distort trade. This agreement affects EPZs that require investors to meet specific performance requirements, such as export targets or local content requirements.
There's more I can mention, but as a result, many countries have had to shift the structure of their EPZs or SEZs to comply with WTO rules, focusing more on broader economic incentives, infrastructure improvements, and investment-driven rather than export-driven benefits.
This is also why China delayed their entry until 2001, and why Ethiopia, Iran, and others are not members yet.
I have always wondered about this. If they are a good idea, why not turn the whole world into that, implying a kind of a libertarian-neoliberal policy. If they are not a good idea, why do them then? It is nice that they can attract foreign investment that would be otherwise not coming, but pretty sure they also redirect domestic investment? What is the logic in the business telling an existing business or a domestic investor that sorry pal, we gotta tax you, schools and stuff, but if you move into that zone then not? And if understanding this they are explicitly reserved for foreign investment, then what is the optics of that? Essentially, discriminating against one's own citizens, sorry pal you gotta pay more taxes because you are one of us?
1) Ultimately they come down to execution. Some SEZs will be like Shenzhen and some will be like Fordlandia. Some have positive Net Prevent Values and some don't just like how not all businesses succeed. Also not all countries have the same state capacity, infrastructure, and coordination to make SEZs succeed.
2) One aspect I'd like to draw your intention to is that in the first paragraph, final sentence I said " The ultimate goal is to attract both foreign and domestic investors to boost production, create jobs, and stimulate economic growth." I then used an example much later about the Dangote refinery in Nigeria, which is a domestic investor. (Dangote is the richest man in Nigeria and Africa with a net worth of $12B). So yes, it can redirect domestic investment.
3) The logic of moving more places to zones, is that you defer taxes for the short term to reap rewards in the long term. The tax exemptions can be short for like 5-10 years, but then if you form economic clusters with many firms, that place will then become a source of tax revenue, like Shenzhen is in China. Singapore, Dominican Republic, Mauritius and China have many great examples of that while other countries like Nigeria or Jamaica don't.
Another reason to build SEZs is to bypass social conservatism. Like, for example, gambling is illegal for Singaporeans but legal for foreigners who go to the marina Bay sands.
A similar strategy is taken by Maldives which is a conservative islamist country but has a big tourist economy where foreign women are wearing bikinis in public beaches.
I understand the political tradeoffs in letting market forces run the energy industry. Plus, there’s no guarantee that they will work
To me, I wonder how African countries can expand power capacity?
How well does Build Operate transfer work?
Hi Sridhar! Good question.
The first aspect I want to say is that there are different models in all 54 African countries, and some models work for some countries and don't work for other countries.
Algeria, Mauritius and Ethiopia both have state run monopolies but electrification rate in Algeria & Mauritius is practically universal while Ethiopia is 55%.
Egypt, South Africa, Cameroon all have minor competition in private sector energy generation (especially renewables) but only 71% of Cameroonians have electricity access while in Egypt its practically universal.
Ghana, Morocco, and Nigeria have significant private competition. In fact in Nigeria there are mainly private generators, but TCN handles transmission.
Morocco has universal access, Ghana 85% and Nigeria is at 61%
https://data.worldbank.org/indicator/EG.ELC.ACCS.ZS?locations=GH-NG-MA
Each country has there own bottlenecks, and at the end of the day it's too difficult to come up with a general solution for Africa because they regulate generation, transmission, and distribution differently.
This is a long way of saying I don't know a generation solution, and there's enough variation within African countries that one solution may be good for one country but terrible for another.
You are definitely an erudite voice regarding the continent.
Do you have a sense of a solar “boom” going on over there, if only in parts of Africa?
In South Africa, the coal powered, state owned Eskom is so bad with providing electricity, it has forced a private sector solar boom in South Africa. 1000 MW to 5000 MW in 2 years. But that mega wattage is so small that having a massive boom should be expected:
https://africanarguments.org/2024/03/south-africa-electricity-crisis-is-driving-a-solar-boom-but-there-is-a-downside/
Morocco has the Noor Power Station, which is the largest solar plant on earth:
https://en.wikipedia.org/wiki/Ouarzazate_Solar_Power_Station
Namibia as well:
https://en.wikipedia.org/wiki/Mariental_Solar_Power_Station
There's also major solar stuff going in in Nigeria, Tunisia, Egypt, Kenya, and a couple others.
This is great, but as always the issue with solar is when the sun isn't shining so you need batteries or natural gas/coal to deal with the intermittency issue.
Thanks for being so generous with your knowledge. I appreciate it
Fascinating. Although I have no knowledge of, nor background in, business or economics, I’m always very interested in learning the ways individuals are working within their own homelands to grow an economy. I hope that makes sense. And although the subject matter is dense and beyond me, you write with such clarity that I want to continue to follow along. Thank you!
Great read. Capital allocation & attractions with aligning incentives is something I'm just really starting to wrap my head around. The structure of initial investment, ROI, risk and potential future profitability is a tough balance.
Yep!
Are you familiar with the discounted cash flow model?
I think that's the best way how I think about the ROI and etc.
I am not. Feel free to educate me anytime. 🙏
Do you find traditional financial dogma or thinking a hindrance?
I'll make a future article on it.
I am not sure what traditional financial dogma/thinking is, but understanding corporate finance or accounting is much better than the made up math that some politicians talk about.
Traditional development models, (total newbie) compared to what is needed on the ground for more shared prosperity that isn't exploitative. My sense is new agreements needed to be considered.
Here's an old article I wrote about this, which I personally want to rewrite:
https://open.substack.com/pub/yawboadu/p/the-international-monetary-funds?r=garki&utm_campaign=post&utm_medium=web
In short the paradigm changes every decade:
1960: the world bank thought governments can run companies and underwrite all infrastructure
1970s: the world bank thought governments are better at healthcare and education than spending on infrastructure and running companies
1980s: the world bank thought the developing World needed a big bang of capitalism- privatize and open up trade for growth
1990s: the world bank thought democracy would lead to economic growth
2000s: the world bank paid off debts
2010s: the world bank returned to poverty reduction of the 70s
2020s: climate change talk.
The fact is rhe world bank is making new hypotheses every 10 years.
Everyone is learning as they are going along.
🙏
I just found your links in a thread.
Great article. It was interesting to read about the different types of Special Economic Zones.
Not to be annoying but should the title be:
Special Economic Zones: A Primer
vs
Special Economic Zones: A Premier
Thanks! I thought I said Primer. My mistake!
No worries, always enjoy your writing and these things can slip through the cracks.
What changed with WTO policy that made EPZs less attractive?
There's a couple:
Agreement on Subsidies and Countervailing Measures (ASCM): The WTO's ASCM, which came into effect in 1995, restricts the use of subsidies, including those offered by EPZs. This agreement limits the ability of EPZs to offer tax breaks, duty-free imports, and etc,
https://www.ituc-csi.org/IMG/pdf/WTO_and_EPZs.pdf
Agreement on Trade-Related Investment Measures (TRIMs): The TRIMs agreement, also implemented in 1995, prohibits WTO members from applying investment measures that restrict or distort trade. This agreement affects EPZs that require investors to meet specific performance requirements, such as export targets or local content requirements.
https://www.wto.org/english/tratop_e/invest_e/invest_info_e.htm
There's more I can mention, but as a result, many countries have had to shift the structure of their EPZs or SEZs to comply with WTO rules, focusing more on broader economic incentives, infrastructure improvements, and investment-driven rather than export-driven benefits.
This is also why China delayed their entry until 2001, and why Ethiopia, Iran, and others are not members yet.
Sweet. Thanks for the reply.
anytime!
I have always wondered about this. If they are a good idea, why not turn the whole world into that, implying a kind of a libertarian-neoliberal policy. If they are not a good idea, why do them then? It is nice that they can attract foreign investment that would be otherwise not coming, but pretty sure they also redirect domestic investment? What is the logic in the business telling an existing business or a domestic investor that sorry pal, we gotta tax you, schools and stuff, but if you move into that zone then not? And if understanding this they are explicitly reserved for foreign investment, then what is the optics of that? Essentially, discriminating against one's own citizens, sorry pal you gotta pay more taxes because you are one of us?
Yea, good questions.
1) Ultimately they come down to execution. Some SEZs will be like Shenzhen and some will be like Fordlandia. Some have positive Net Prevent Values and some don't just like how not all businesses succeed. Also not all countries have the same state capacity, infrastructure, and coordination to make SEZs succeed.
2) One aspect I'd like to draw your intention to is that in the first paragraph, final sentence I said " The ultimate goal is to attract both foreign and domestic investors to boost production, create jobs, and stimulate economic growth." I then used an example much later about the Dangote refinery in Nigeria, which is a domestic investor. (Dangote is the richest man in Nigeria and Africa with a net worth of $12B). So yes, it can redirect domestic investment.
3) The logic of moving more places to zones, is that you defer taxes for the short term to reap rewards in the long term. The tax exemptions can be short for like 5-10 years, but then if you form economic clusters with many firms, that place will then become a source of tax revenue, like Shenzhen is in China. Singapore, Dominican Republic, Mauritius and China have many great examples of that while other countries like Nigeria or Jamaica don't.
Another reason to build SEZs is to bypass social conservatism. Like, for example, gambling is illegal for Singaporeans but legal for foreigners who go to the marina Bay sands.
A similar strategy is taken by Maldives which is a conservative islamist country but has a big tourist economy where foreign women are wearing bikinis in public beaches.