In a decisive move signaling a serious intent to court international capital, in 2022 the Zimbabwean government has formally designated Victoria Falls as an International Financial Services Centre (IFSC) through Statutory Instrument (S.I.) 4 of 2022. This critical declaration, issued by the Minister of Finance and Economic Development Mthuli Ncube and effectively anchors the resort town within the existing Special Economic Zone (SEZ) framework, creating a specialized financial gateway designed to attract sophisticated foreign investment.
What are special Economic Zones?
Special Economic Zones (SEZs) are specific, demarcated geographical areas established by a government to foster Foreign Direct Investment (FDI) by implementing business rules that are more lenient and attractive than the country’s general laws.
These zones typically offer powerful financial incentives, such as exemptions from certain taxes and the ability to import goods duty-free.
Furthermore, they often feature simplified administrative processes and regulations that may be based on common law principles, setting them apart from the standard national legal framework.
Fundamentally, SEZs are intended to function as major drivers of economic activity, specifically promoting industrial growth, increasing national exports, and encouraging the development of necessary infrastructure.
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This legislative action, which operationalizes the Victoria Falls SEZ as an IFSC, is a direct response to the historical challenges faced by international firms seeking to invest in Zimbabwe, particularly concerning currency risk and the repatriation of funds.
The SEZ framework, overseen by the Zimbabwe Investment and Development Agency (ZIDA), offers a liberal legislative environment with specific fiscal and non-fiscal incentives intended to make the jurisdiction highly competitive.
In South Africa, the Special Economic Zone Act (2012) defines SEZs as an economic development tool to promote national economic growth and export through the use of support measures in order to attract targeted foreign and domestic investments and technology.
According to IPAP, SEZs are used to stimulate foreign and domestic investment; increase production output leading to increased exports of value-added manufacturing goods; employment creation; transfer of technology and skills development; creation of economic linkages through supplier development and regionally spread industrial development.
According to Thomas Farole, Special Economic Zones (SEZs) act as a policy instrument designed to attract foreign direct investment (FDI) and boost exports through a more liberalised, competitive business environment compared to the national territory.
They offer both short-term “static” benefits (jobs, exports, FX) and long-term “dynamic” benefits, such as technological spillover, industrial diversification, and structural transformation.
Importance of Special Economic Zones (SEZs)
They provide a stable and favorable investment climate. FDI is a crucial driver of economic expansion in developing nations, and Special Economic Zones (SEZs) such as Victoria Falls are frequently employed as strategic tools to cultivate the stable and favorable investment climate necessary to attract this capital for productive use.
These zones are designed to stimulate the domestic economy both directly and indirectly through the establishment of backward and forward linkages.
Backward linkages occur when the SEZ procures industrial supplies from local producers, while forward linkages are established when the zone supplies goods or services to non-zone domestic activities and the broader community.
SEZs facilitate the inclusion of developing economies in global value chain
Successfully participate in global production, which is increasingly structured around global value chains (GVCs), developing economies must possess the capability not only to import or produce high-quality intermediate inputs but also to effectively export finished goods.
SEZs serve as a vital policy tool to facilitate this inclusion into GVCs by granting access to new international markets.
Furthermore, SEZs function as essential information centers; they simplify the investment process by providing prospective foreign investors with easy access to crucial data regarding the host country’s investment conditions, thereby significantly reducing the search costs associated with establishing operation.
Liberalised regulatory environment
A key feature is the simplification of bureaucracy, often involving “one-stop-shop” administrative services for permits, licenses, and customs procedures.
This business-friendly atmosphere is intended to remove the typical logistical and regulatory bottlenecks found in the rest of the national economy.
Victoria Falls has been strategically positioned as the flagship SEZ due to its inherent global brand recognition as a Unesco World heritage site which attracts tourists.
Heritage ste and its established tourism infrastructure
Specific projects, such as the Masuwe Special Economic Zone (MSEZ), have been approved to focus on large-scale tourism infrastructure, including conference facilities, hotels, and medical tourism facilities, often financed through Public-Private Partnerships (PPPs) like the one with Old Mutual Life Assurance Company.
whoever, the implementation of SEZs is not without challenges. While they aim to attract investment, their effectiveness is not guaranteed, and some zones have underperformed relative to expectations.
Furthermore, the relaxation of regulations can sometimes lead to issues of opacity, potentially attracting illicit activities, or create economic inequalities between the zone and the surrounding national territory.
Ultimately, the success of an SEZ hinges on a well-conceived strategy, political will, and the ability to adapt its incentives and regulations to maintain competitiveness in the global investment landscape.
*Adam Mavhiko is a fourth-year law student at Midlands State University and is the vice-president at faculty of law association. Mavhiko is a passionate leadership trainer, researcher and has keen interest in changing the narratives of Africa through his writings and he writes in his capacity. He can be contacted on +263776026385.