How Rwanda can make structural transformation through free trade zones: the case of Shanghai

By Théophile Niyitegeka
On 12 October 2023 at 12:02

In a world where economic growth requires constant innovation and new approaches, it is imperative for countries to reconsider the role of Special Economic Zones (SEZs) in driving economic progress.

SEZs have become powerful tools for promoting economic growth and development. Rwanda, a country experiencing rapid economic growth cannot afford to overlook the potential of SEZs.

A glance at Rwanda’s journey in promoting SEZs

Rwanda’s SEZ program began with the drafting of the SEZ law in 2011, followed by the development of the Kigali Special Economic Zone (KSEZ). The KSEZ served as a model for future SEZ projects in Rwanda. Since then, the country has established industrial parks in Bugesera, Rwamagana, Muhanga and Musanze among others.

The Kigali Special Economic Zone spans 385 hectares, with plans to expand to 400 hectares.

The bird's eye view of Kigali Special Economic Zone

Housing approximately 150 companies; the Kigali Special Economic Zone attracted private sector investments worth an estimated $2.3 billion, resulting in over 13,000 permanent job opportunities and generating export revenues surpassing $1 billion since 2018.

Moreover, between 2018 and 2021, it contributed around Rwf120 billion in taxes. The recently unveiled Kigali Innovation City, valued at $300 million, is set to be established within the zone, further enhancing its reputation as a burgeoning tech hub.

As per figures released by the National Institute of Statistics of Rwanda in June 2023, the Gross Domestic Product (GDP) was estimated at Rwf3,901 billion, up from Rwf 3,021 billion recorded in the first quarter of 2022.

The industry sector’s contribution to the GDP rose to 22 percent, up from 14 percent in 2014.

Lessons from Shanghai

Despite making significant strides, Rwanda can further boost its economy by adopting best practices and drawing inspiration from successful models. One such captivating success story comes from Shanghai, China’s pioneering efforts in establishing Special Economic Zones (SEZs).

Shanghai’s triumph in developing Free Trade Zones (FTZs) can be traced back to its early efforts in the 1980s. Through strategic positioning and leveraging its advantageous trade location, Shanghai emerged as an irresistible magnet for investments.

The Waigaoqiao area in Shanghai Free-Trade Zone (FTZ) is seen in 2018. Photo Xinhua

In 1990, Shanghai took a bold step by creating the Pudong New Area, a comprehensive FTZ. This area became the premier destination in Shanghai for investors, talents, and innovators, offering a supportive business environment and unbeatable policy support.

The establishment of Pudong New Area was a turning point in Shanghai’s history. Over the years, it went through various expansions and transformations, eventually becoming a national development area in 1990, a pilot area for comprehensive reforms in 2005, and finally, the Shanghai FTZ in 2013.

In 2022, Pudong New Area’s GDP surpassed 1.6 trillion yuan, accounting for 35.9 percent of Shanghai’s total. It also achieved a 4 percent increase in the gross industrial output value above designated size from the previous year. With ambitious plans, Pudong aims to achieve about 7 percent GDP growth in 2023, outperforming the city’s average.

Looking ahead, Pudong has set ambitious goals for the next five years, with plans to expand its economic aggregate to 2 trillion yuan and increase per capita GDP and disposable income significantly.

The Shanghai FTZ has been expanded to include Lingang, an area reclaimed from the sea. Photo: Xinhua

Today, China has created an astounding 21 FTZs and the Hainan Free Trade Port, demonstrating the immense potential of these zones to drive economic progress.

From 2013 to 2022, China’s GDP grew from 56.9 trillion yuan ($9.4 trillion) to 121 trillion yuan (around $18.1 trillion).

SEZs have contributed 22% of China’s GDP, 45% of total national foreign direct investment, and 60% of exports. By 2021, SEZs had created over 30 million jobs in China, increased the income of participating farmers by 30%, and accelerated industrialization, agricultural modernization, and urbanization.

The success of Shanghai and other FTZs in China can be attributed to several factors, including clear development strategies, strategic locations, a reform-oriented approach, constant upgrading of strategic sectors, and strong government-enterprise partnerships.

It is no brainer that learning from Shanghai’s success story and leveraging its own strengths to pave the way for structural transformation can undoubtedly propel Rwanda’s economy forward.

This panoramic aerial photo taken on Jan. 10, 2023 shows a view of Lujiazui area in the China (Shanghai) Pilot Free Trade Zone in east China's Shanghai. (Xinhua/Fang Zhe)