China’s Special Economic Zones: A textbook benchmark for Botswana

Journalists from Botswana at the Huawei headquarters in Shenzhen, China
Journalists from Botswana at the Huawei headquarters in Shenzhen, China

Government has embarked on an ambitious programme to set up eight Special Economic Zones (SEZ) across the country to boost economic diversification and bolster exports, which are precariously 80 percent dominated by the fast depleting diamond resource. Staff Writer, BRIAN BENZA was recently in China’s pioneering Special Economic Zone, Shenzhen city, as a guest to Huawei Technologies. There he observed that Botswana could pluck a leaf or two from the tale of a seemingly miraculous and inspirational economic revolution that overhauled this former peasant farming village into China’s third largest economic hub and the country’s top export zone over a three decade period

From being just a small fishing village of 20,000 peasant farmers only three decades ago, the Shenzhen city of China has transformed under reforms introduced by Deng Xiaoping, to become the country’s own Silicon Valley with a population of 20 million and host to  some of the largest companies in the world.

When it was designated as China’s first SEZ in 1979, Shenzhen boasted nothing more than a few thousands of mostly trout farmers, and only 26 small factories with a total industrial output of less than $10,000.

By that time Shenzhen’s major activity was agriculture, with food products representing about two-thirds of the industrial production revenue. In 1979, the incentive package devised for the SEZs was announced for Shenzhen and two other hubs of Zhuhai and Shantou.

Documentation at the Shenzhen museum says a fundamental incentive system was designed to attract foreign direct investment (FDI) through measures such as streamlined administrative control, relative independence for local planning authorities, direct access to provincial and central level planning units, access to tax breaks, free or low duties on imported equipment and production materials.

One of the companies that today stands out as a success story of China first SEZ is Huawei Technologies, which shares a similar ‘from rags to riches’ story with its headquarters city, Shenzhen.

In an interview at the company’s headquarters, north of Shenzhen city, Huawei Technologies vice president and head of international media affairs, Joseph Kelly said so many parallels can be drawn between the growth of Shenzhen, the SEZ and Huawei, the SEZ beneficiary that opened shop 28 years ago with an investment capital of just $3,500 but is now a global ICT leader with a turnover of $46 billion in 2014.

“Many opportunities were created for businesses when Shenzhen was established as a SEZ.  Huawei started in 1987 as a small business involved in buying of PBX machines from Hong Kong and reselling in Shenzhen.

“Two years later, there was a disagreement with the seller of the machines in Hong Kong and that’s when the founder of Huawei, Ren Zhengfei, decided to manufacture his own PBX machines, marking the birth of Research and Development at Huawei.  Within the economic zone, policies were designed to attract inward business, so they were hotels, apartments and factories been set up for the new city and these created a huge market for the PBX machines which are used for transferring calls.

“At that time China was a very underserved market for telecommunications, particularly in the rural areas as many of the big players such as Alcatel were only active in the big cities.  This presented an opportunity for Huawei and it began to expand and develop more telecomms products and hired more workers. At that time it was difficult for Chinese people to travel and move across because of restrictions imposed by the government. But because of its SEZ status, Shenzhen was exempted from these restrictions and the company along with other firms in the SEZ was able to attract best talent from across China.  At the same time other technology focused companies, some from China and others international, were also being attracted to Shenzhen,” said Kelly.

From that foundation, Kelly says, “As they say, the rest was history”.

“At that time it wasn’t just Shenzhen growing, it was the rest of China with more people getting wealthier and therefore requiring services such as telephones. So Shenzhen provided an ecosystem based on technological advancement.

“In the late 1990s, the company decided it had built enough capacity in China and then opened offices out of the country and we started with Russia. So since then, we have become global and are operating in 170 countries and employing 170,000 people.  As we became global, Shenzhen as a city has become global and large. There are technical parks all over the city, making televisions, software, batteries and other technology products. The city now has an ecosystem that allows companies to make components for suppliers in Shenzhen and all over the world.  Today it is now the largest exporter of goods in China,” said Kelly.

According to WIPO, Huawei filed more international patents than any other firm in 2014, and it has invested more than 190 billion yuan ($30.5 billion) in research and development in the past decade. The company is now China’s largest telecomms equipment maker, and also a major smartphone manufacturer.

Huawei’s net profit for 2014 was 27.9 billion yuan ($4.48 billion). The company is also leading transformation in many industries, including broadband, cloud computing, big data, and the so-called internet of things.

Many other companies share a similar growth story as that of Huawei, contributing to the city’s GDP of  $260.48 billion in 2014. Next door to the Huawei headquarters is a company called Foxconn, which employs over 350,000 people manufacturing high-end phones, tablets, laptops, and gaming consoles for the likes of Apple, Microsoft, Dell and Sony.

In fact, Shenzhen has become a global player in high tech manufacturing that the city is estimated to produce about 90 percent of the world consumer electronics as well as about a third of the world’s spectacles.

According to city officials, companies operating in Shenzhen also benefitted from free or low-rent business accommodation; flexibility in hiring and firing workers; depreciation allowances; negotiated limited access to the domestic Chinese market for goods produced within SEZs; and residence and work permits and income tax exemptions for foreigners working within the SEZs.

Coming back home, as Botswana battles lack of economic diversification, it has set up eight SEZs, which are meant to function with special administrative, regulatory and fiscal regimes that are different from the domestic economy.

Currently identified areas for SEZs are Gaborone (adjacent to the Sir Seretse Khama International Airport) for international diamond activities and specialised manufacturing.

The Fairgrounds area in Gaborone has been earmarked for Financial Services  with Lobatse targeting the beef, leather and biogas industries.

The greater Palapye will focus on integrated coal value addition while Selebi-Phikwe will specialise in  mineral beneficiation.

Tuli Block  will target  horticulture and other agrobusinesses while Francistown is earmarked for mining supplies, services and logistics hub.

Lastly, the Pandamatenga area will specialise in integrated farming, agro-business and food processing.

With Parliament already having approved the setting up of the SEZs and headway being made in establishing a SEZ Authority, Botswana can learn much from the success story of Shenzhen and even other similar accounts, such as that of Mauritius.

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