Expertise France is a French public international cooperation agency. It designs and implements projects which aim to contribute to the balanced development of partner countries, in line with the Sustainable Development Goals (SDGs) of the 2030 Agenda and the priorities of France’s external action. Expertise France’s mission is to meet the demand of partner countries seeking to enhance the quality of their public policies in order to address the environmental, social, economic and security challenges they are facing. The agency achieves this goal by implementing projects in the main areas of public action:

 Democratic, economic and financial governance;          

-     Stability, international security and peace Stability, international security and peace;

-     Sustainable development, climate and agriculture;

-     Health and human development.

In order to give substance to this dialogue and to enshrine it in the long term and with a specific focus on the second theme of its declaration of intent, a total of EUR 2.75 Million in funding (in 3 phases) have been granted by the French Development Agency (AFD) to Expertise France in the form of a technical assistance and capacity-building facility to support the African Union (AU) on issues within its area of expertise.

Based on a request from different departments from the African Union Commission (AUC), the French Facility for Technical Assistance to the AU facilitated the conduct of a number of studies, strategy and policy papers aimed at supporting the AUC on topics related to economy and commerce.

 Challenges for Micro Small and Medium Enterprises (MSMEs) to be integrated in Special Economic Zones (SEZs)

EZs have been instrumental in attracting investment and driving industrialization across Africa. However, their full potential in contributing to broader local economic development often remains untapped due to insufficient integration of local SMEs into their value chains. While SEZs offer advanced infrastructure and a conducive business environment, many SMEs struggle to meet the stringent requirements of larger enterprises operating within these zones, limiting their participation in significant economic opportunities.

The importance of SME integration into SEZs has been a central theme in recent discussions and reports. The study on “SEZ Contribution to SME Integration and Local Economic Development” was validated during the AEZO SEZ annual meeting in Tangier, Morocco (November 22-24, 2023) under Phase 2 of the AU Facility project. The African Union Commission (AUC) further organized the official launch of the report as part of the Pan African Quality Infrastructure (PAQI) event held in Addis Ababa, on November 12, 2024. The report’s findings and recommendations were subsequently presented at the AUC-AEZO Special Economic Zone annual meeting in Nairobi, Kenya (November 27-29, 2024), and at the AU-UNECA Symposium on “Successful harmonization of frameworks for the development and operationalization of next-generation Special Economic Zones in Africa” in Douala, Cameroon (January 21-23, 2025). Furthermore, the New Cities Summit 2025 in Nairobi (June 12-13, 2025) emphasized the role of SEZs in accelerating local economic development and inclusivity, drawing lessons from existing models in Africa. In June 2025, the report was presented at the 4^th SME Forum in Abuja, convened by the AU ETTIM in collaboration with the Government of the Federal Republic of Nigeria.

The report outlines eight key policy recommendations aimed at accelerating the transition and adaptation of SEZs to new competitiveness requirements including the alignment with ESG principles to accelerate SME integration. The policy recommendations are:

        i.            Strengthening of proper governance.

       ii.            Reduction on tax benefits.

     iii.            Transitioning from first generation SEZs to new the generation extending their activities to emerging sectors (biotechnology, pharmaceuticals, automotive industry, healthcare, renewable and green energy, circular economy [waste management], AI/emerging technologies).

     iv.            Increased local firms’ participation, including suppliers, through interaction with large enterprises via subcontracting and outsourcing initiatives.

       v.            Incorporating ESG standards and compliance into SEZ regulations and beyond.

     vi.            Encourage transfer of best practices, knowledge and technology between African SEZs which developed innovative models on MSME integration and ESG implementation.

   vii.            Supporting the national/ and regionals spatial planning and & development, and investment in transport corridors to create a conducive ecosystem accelerated SME creation and growth.

 viii.            Leverage on AfCFTA (integrated market), regional and global trade protocols.

Subsequent discussions and further reports (AFD 2025) have advocated for modern governance models, regulatory frameworks, and strategies to integrate SMEs into SEZs as catalysts for sustainable growth and part of inclusivity. They highlight SEZs as pivotal hubs for advancing regional spatial planning and development, capitalizing on the opportunities offered by the African Continental Free Trade Area (AfCFTA) and strategic trade corridors. The key guardrails target sectors of high-growth, skills development, financing access, quality infrastructure, and equipping MSMEs with training and resources to collaborate with larger corporations.

There is further emphasis on partnerships between SEZs, private sector organizations, and financial institutions to create sustainable markets and financial mechanisms, driving knowledge transfer, innovation, and green investment. These recommendations should serve as a guide for governments to reform policies, attract sustainable investments, and support a new generation of SEZs as engines of inclusive and sustainable development, including the involvement of women and young entrepreneurs. Increased local firms’ participation, through interaction with large enterprises via subcontracting and outsourcing initiatives, and incorporating ESG compliance into SEZ regulations and beyond, are crucial aspects.

They also encourage the transfer of best practices, knowledge, and technology between African SEZs that have developed innovative models on MSME integration and ESG implementation. Leveraging the AfCFTA (integrated market), regional, and global trade protocols are also key recommendations (AU-ETTIM 2024) to support scale.

This project builds upon these insights, proposing a targeted approach to systematically foster deeper MSME and SEZ relationships. By focusing on direct business linkages, the program aims to unlock new avenues for SME growth, technology transfer, and skills development, ultimately enhancing the local economic impact of SEZs.

 Pathways for SME SEZ relationship building

 To build these relationships, there are fundamental challenges that need to be addressed in a pragmatic manner, which are defined in the problem statement.

 PROBLEM STATEMENT ON MSME INTEGRATION INTO SEZS

Despite the recognized potential of SEZs to drive economic growth and SME development, significant challenges persist in effectively integrating SMEs into these zones. These challenges include:

•             Limited Access to Information and Networks: MSMEs often lack awareness of the specific sourcing needs of large enterprises within SEZs and struggle to access the necessary networks to establish direct business relationships. This information asymmetry hinders their ability to bid for contracts or offer their services effectively.

•             Capacity and Quality Gaps: Many SMEs may not possess the technical capabilities, production capacity, or quality certifications required to meet the stringent demands of large, often multinational, corporations operating in SEZs. This gap extends to areas such as consistent delivery, adherence to international standards, and advanced technological processes.

•           Financial Constraints: Even when opportunities arise, MSMEs may face financial barriers, such as a lack of working capital to fulfil large orders, invest in necessary equipment, or obtain performance bonds. Traditional financial institutions may be hesitant to lend to SMEs engaged in complex supply chain agreements.

•             Lack of Tailored Support: Existing support programs for SMEs may not be specifically designed to address the unique challenges and opportunities presented by integration into SEZ value chains. There is a need for targeted technical assistance, mentorship, and financial products that facilitate these specific types of business linkages.

•             Policy and Regulatory Gaps: While some policies encourage local content, there may be insufficient regulatory frameworks or incentives within SEZs to actively promote and enforce contracting, subcontracting, sourcing, and outsourcing to local SMEs. This can lead to large enterprises preferring established international suppliers.

•             Risk Aversion of Large Enterprises: Large enterprises may perceive engaging with local SMEs as higher risk due to concerns about reliability, quality control, and potential disruptions in the supply chain. This risk aversion can limit their willingness to explore local partnerships.

•             Limited Involvement of Women and Youth Entrepreneurs: Despite their significant potential, women and youth-led SMEs often face additional barriers in accessing opportunities within SEZs, including limited access to finance, networks, and tailored capacity-building programs.

These systemic issues are a barrier to a seamless integration of SMEs into SEZ value chains.  They limit the broader economic benefits that can accrue to the local and national economies. This project proposes a process that pragmatically addresses these barriers to create a more inclusive and mutually beneficial ecosystem.  For this to happen, it is important to understand the underlying and emerging business models for SEZs.

Business model of the new generation of SEZs and ongoing best practices

The new generation of SEZs are characterized by an evolving business model that integrate diverse investors, leverage on strategic infrastructure development, and have a strong commitment to ESG principles. These models are designed to drive sustainable growth and enhance local economic development.

SEZs attract a wide spectrum of investors, from multinational conglomerates to specialized firms, driving growth across key sectors. Major players like Dangote Group (Nigeria) and Sumitomo Corporation (Japan) focus on industry and infrastructure, while companies such as Olam International (Singapore) and ARISE IIP (Dubai), and OCP Group (Morocco) support value addition to natural resources. Mara Group is involved in high-tech product development, notably manufacturing smartphones in SEZs in Kigali (Rwanda) and Dube (South Africa). Rendeavour (US, UK, New Zealand, Norway) specializes in developing new cities. While innovative technological solutions are a common trend among investors, logistics firms are at the forefront of adopting advanced digital solutions and AI to enhance operations and service management.

The investor business models in SEZs are built on a corporate strategy that establishes governance structures that guide investment, expansion, and strategic partnerships. The focus is on their core business, reinforcing their brand identity, delivering on their value proposition, and offering competitive goods or services to their clients. The goal is to establish operations in strategically advantageous environments, rich in raw materials, technical human capacity, while leveraging efficient transport and logistics infrastructure that improves connectivity to global markets and enhances supply chain efficiency. Conversely, SEZ-driven investments often spur further infrastructure development, as governments and private stakeholders collaborate to upgrade highways, railways, and multimodal logistics hubs to meet growing trade demands. Therefore, their presence incentivizes further infrastructure investments, creating a mutually reinforcing cycle of economic growth and regional integration.

Finally, there is a growing demand from civil society and development agencies for greater investor accountability, which is driving SEZs to implement sustainable and responsible investment. ESG initiatives include the adoption of green technologies, recycling, and circular economy practices, as well as a strong focus on social inclusion and job creation-particularly for women and youth. Transparent governance, anti-corruption measures, and fair labor practices further reinforce their commitment to responsible and sustainable development, which creates an opportunity for SMEs to be gainfully integrated into the SEZ economic system.

In this context, the AUC-ETTIM Department is initiating the implementation of the recommendations from the study “SEZ Contribution to SME Integration and Local Economic Development” through a pilot project aimed at integrating women and youth entrepreneurs into Uganda’s Special Economic Zone (Industrial Parks).

The project will be carried out in collaboration with the Uganda Women Entrepreneurs Association Ltd (UWEAL), African Women in Processing (AWIP) which is mandated to promote policy advocacy, networking, and business incubation. The programme could be channelled through the Free Zones Authority and involving the Uganda Ministry of Industry and Cooperatives. It will also engage development programmes such as GROW and GLOW, which support capacity building, access to finance, and market and youth business associations. In addition, the Atlantis Special Economic Zone (Western Cape, South Africa) agreed in principle to share its experience and expertise in the integration of women and youth entrepreneurs into SEZ activities. In addition, other important ecosystem actors especially enterprise support organizations (ESOs) will be engaged at the appropriate stages.