Special economic zones: Africa's new tax havens?

Long heralded as catalysts for industrialization, Africa's Special Economic Zones (SEZs) are also home to optimization mechanisms that sometimes border on the obscure. Massive tax incentives streamlined customs procedures, and separate legal statuses attract capital but create tax blind spots. While the continent now boasts over two hundred zones of varying formats, international bodies are warning of their vulnerability to manipulation of commercial value, the circulation of misdeclared capital and the use of shell companies. The debate does not pit the "pro-zones" against the "anti-zones": it questions the quality of fiscal and institutional safeguards.

In Kenya, the coexistence of Export Processing Zones (EPZs) and SEZs is a case in point. EPZs benefit from 0% corporate tax for ten years, duty exemptions and zero-rate VAT; SEZs offer similar incentives and a one-stop shop. The stated counterpart is exports. In practice, the tax authorities (KRA) have penalized companies for diverting goods to the domestic market after duty-free entry, in defiance of export scheme obligations. These cases are a reminder that the boundary between "export" and "local market substitution" is a porous one, and that without strict conditionalities, the incentive becomes a fiscal shortcut.

Nigeria offers a large-scale case in point. Under the NEPZA and OGFZA regimes, zonal companies have long operated with incomplete reporting obligations, even as a proportion of sales slipped into "customs territory". Since 2024, FIRS-NEPZA guidelines have required the filing of declarations (including VAT and withholdings) and clarified collection. What's more, the tax reform stipulates that above 25% of sales outside the zone, the corresponding profits are taxed and, in time, sales within the customs territory will no longer benefit from automatic exemptions. The message is clear: preserve the export advantage but close the door to aggressive arbitrage that siphons off the national tax base.

In Benin, the Zone Industrielle de Glo-Djigbé (GDIZ) embodies a clear policy: to capture the value of cotton and cashew nuts locally, build integrated textile chains and create jobs. The public-private partnership set up with a single developer promises competitive energy, a one-stop shop and long-term tax exemptions; factories are up and running, and the zone already boasts thousands of jobs. But this model concentrates prerogatives within a dominant operator, while the full financial terms of the concessions and the final beneficiaries are not always published. The risk is not theoretical: opacity feeds fear of discretionary allocation to economic or political allies.

Djibouti sheds light on the geo-economic side of SEZs. Backed by a strategic port hub, the Djibouti International Free Trade Zone, co-developed with China Merchants, combines extensive tax and customs exemptions, foreign exchange facilities and a liberal property regime, sometimes with very long-time horizons. The ambition is clear: to capture regional logistics and light industry linked to the Ethiopian corridor. But the interweaving of port authorities, free zones and public-private joint ventures, as well as the public guarantees attached to certain financing, raise issues of governance and budget transparency.

The equation is the same everywhere. SEZs accelerate industrialization, diversify exports and attract supply chains, with visible gains in formal employment. But they also externalize costs: erosion of the tax base (via disguised domestic sales, duty remittances and transfer pricing), unfair competition for out-of-zone companies and loss of revenue for already strained budgets. When "holidays" drag on, tax expenditure becomes a parallel budget, little debated and rarely evaluated, while the stated attractiveness can mask the rents captured by well-connected networks.

The remedies are well known. The first line is to lock in the exception. Set low ceilings for local duty-free sales, tax proportionally above them, replace unlimited exemptions with tax credits conditional on verifiable and published indicators, and draw up an annual table, zone by zone, of tax expenditure and its results. Second line: trace the money trail. Generalize registers of verified beneficial owners, impose country-by-country accounting and reporting obligations for groups operating in the zone, cross-reference regional customs data to detect under- and over-invoicing, and apply anti-money-laundering standards to trade based on the value of exchanges. Third line: make zone operators accountable through independent audits and publication of concession contracts.

SEZs are not, by nature, tax havens. They become so when the exception becomes the system, when opacity protects rents and industrial policy boils down to exemptions. Africa needs high-performance zones; above all, it needs responsible zones, where competitive advantage stems from productivity, reliable energy, logistics and skills, not from a regulatory blind spot. Only then will the promise of SEZs (attract, produce, export) cease to be a fiscal gamble and become a verifiable development strategy. And that's precisely the course we need to set.