In the Zone

　　African free trade zones can benefit from the experience of their Chinese counterparts

　　Since the launch of the China (Shanghai) Pilot Free Trade Zone (the Shanghai FTZ) on September 29， 2013， the project has been progressing at a steady speed.

　　The establishment of the Shanghai FTZ is a significant move by China to conform to new trends in the global economy and trade， as well as to implement a more active opening-up strategy. Similarly， setting up economic and trade cooperation zones in Africa is part of the nation’s plan to carry out the policy of “going global.”

　　In essence， there are similarities between the Shanghai FTZ and China’s economic and trade cooperation zones in Africa. Both are launched in specific areas of a country or region to pilot preferential taxes and loosened regulatory policies， in order to facilitate business and investment.

　　Currently， there are 16 state-level overseas economic and trade cooperation zones under construction， six of which are located in Africa， namely， Mauritius Tianli Economic and Trade Cooperation Zone (ETCZ)， Zambia-China ETCZ， Ogun-Guangdong FTZ in Nigeria， Lekki FTZ in Nigeria， Ethiopian Eastern Industry Zone and Suez ETCZ in Egypt. Those FTZs and ETCZs have played active roles in upgrading bilateral trade as well as consolidating cooperation with the host countries.

　　Statistics by the Department of Outward Investment and Economic Cooperation of China’s Ministry of Commerce showed that， by the end of 2011， the six FTZs and ETCZs in Africa had invested $368 million and attracted 149 companies， generating employment for 11，761 locals. They had also yielded a total output value of $4.52 billion， and contributed $143 million in tax revenue to host countries.

　　However， FTZs and ETCZs also met with difficulties in attracting investment and financing， problems of inefficient management and poor infrastructure in host countries， jeopardizing further advancement of the zones.

　　China expects its reform measures piloted in the Shanghai FTZ to be rolled out more extensively. In the first six months since the zone opened， about 36 reform measures that could be copied had been implemented elsewhere. The reform achievements and institutional mechanisms in the zone， in line with trade and investment rules that are adopted worldwide， will provide some enlightenment to African countries in establishing FTZs. Based on realities about China’s FTZs and ETCZs in Africa and the economic situation in host countries， the experience gained from the Shanghai FTZ will shed light on the development of the FTZs and ETCZs in Africa in the following aspects：

　　First， a system facilitating foreign investment should be established. The FTZs and ETCZs in Africa serve as investment attraction platforms and cluster development platforms. Businesses undertaking the establishment of the zones should offer comprehensive services， from regulations consultancy， employment permit acquirement and business registration to warehousing and transportation， based on their accumulated experience operating in the host countries. These services would enable investors to learn more about the zones and become more confident about the cooperation.

　　Many innovative measures supporting foreign investment in the Shanghai FTZ can be borrowed in this regard. For example， the administrative committee of the Shanghai FTZ highlighted after-investment service， established an information monitoring platform shared by multiple departments， and collected investment statistics and annual inspections to make it more convenient for foreigners investing in the zone.

　　Second， the trade structure of the zones should be upgraded. The foreign trade of most African countries is now focused on exporting resource products. With energy resources， raw materials and primary products as the main exports， most of them are at a disadvantage in international trade competition. When attracting investment in the FTZs in Africa， China should help African countries become more involved in the processing trade， extend their advantageous industrial chain and add value to their products.

　　Learning from the experience in the Shanghai FTZ， China can help investors in the FTZs in Africa foster new business with core competitiveness in terms of technology， brand， quality and service. Also， there should be a trading and allocating platform for bulk stock on which international trade of energy products and industrial raw materials and agricultural products can be efficiently conducted. The pace of e-commerce development should be accelerated with a supporting facility of inspection， quarantine and logistics.

　　Third， the financial service should be enhanced. The construction of the FTZs in Africa relies on financial support， as they need large and long-term capital input. Businesses investing in the zones， mostly private ones， are also in great demand of similar financial services.

　　By learning from the move of encouraging bank branches and innovation of financial products in the Shanghai FTZ， China can support financial institutions with strong profitability and risk-control capabilities to enter the FTZs in Africa， providing localized financial services to businesses in the zones. Financial institutions are also encouraged to explore new services to facilitate Chinese businesses to go abroad.

　　Last， but not least， when operating FTZs， Chinese businesses should effectively handle the relationship with host countries. With a business-to-government approach in doing business in the zone， Chinese businesses usually can’t speak directly with the host government. Some African administrations even mistakenly maintained that they shouldn’t provide supporting policies and services to these FTZs. Reaching consensus on win-win cooperation in FTZs will be essential to the future development of China’s FTZs in Africa.

　　China’s FTZs in Africa can expound reforms on upgrading government services in the Shanghai FTZ， so that the host countries can better learn what the FTZs will bring to their economies. The management committee in the Shanghai FTZ streamlines the administrative approval procedure to improve the efficiency and transparency of services， which greatly facilitates investors and boosts win-win cooperation. By learning from reforms in this manner， the host governments will gradually support the development of FTZs.

　　Meanwhile， the Chinese Government should also help businesses coordinate with host countries by promoting the establishment of inter-governmental cooperation mechanisms in China’s FTZs in Africa.

　　In the future， pilots can be tried out to cooperate in policies of attracting investment， industrial coordination and exchanges of human resources between China’s domestic FTZ and its FTZs in Africa， in a bid to jointly operate the zones in a mutually beneficial approach.

　　By Jiang Feifei

　　(The author is a research fellow with the Chinese Academy of International Trade and Economic Cooperation)

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