By Pierre Boussel

As part of the ongoing global geoeconomic transformation into a multipolar order, countries and regions worldwide are looking to boost their economic prospects and security outlooks. On Europe’s doorstep, the highly competitive Mediterranean and North African region is a prime contender for growth driven by foreign investment.

Countries in the Maghreb, in particular, are creating free trade zones (FTZs) to lure multinational corporations seeking favorable taxation arrangements and regulatory frameworks with assurances of transparency and security in locations adjacent to centers of global demand. However, low labor costs, geographical proximity to the European Union and malleable trade unions, while appealing, are not yet sufficient to transform North Africa into an attractive economic area.

In a region where inter-state collaboration is weak, each country typically attracts as much foreign investment as possible and asserts regional superiority while trying to rid itself of the Maghreb’s old demons: corruption, money laundering and political insecurity. Promoted as islands of economic security, free trade zones are as heterogeneous as their host countries.

Local dynamics remain a sword of Damocles for investors, as does the issue of recruitment. The labor pool here is of uneven quality, between the abilities of Algerian workers, who require extensive training programs to upgrade their skills, and Moroccans, who are too often relegated to perform repetitive tasks and are not inclined to the relocation requirements of high-tech companies. Tensions and rivalries between states can quickly complicate investment conditions, for example, in terms of profit repatriation or currency transfers.

What North Africa offers multinationals

In the absence of political and economic cohesion, let alone tax harmonization, North Africa is a region of contrasting conditions. With 12 industrial acceleration zones dedicated respectively to the automotive, aeronautics, offshoring, green energy, defense and fisheries sectors, Morocco is a leader in North Africa. While these zones securing tenants testifies to Morocco’s dynamic policy of integration into the global economy, they do not shield the country from substantial variations in performance: Foreign direct investment inflows to Morocco fell by nearly 50 percent in 2023, and unemployment is currently close to 14 percent, a level not seen for two decades.

In addition, foreign companies operating in Morocco still find it challenging to fill managerial positions that bridge the gap between production lines and plant management. The staffing is available, but it is a long and tortuous road to fill key positions.

Tunisia is keen to attract investments in high-value-added sectors but faces significant obstacles in this pursuit. Its two free trade zones lack adequate infrastructure, particularly in transport and logistics, reducing their competitiveness. The FTZ Zarzis Park suffers from considerable logistical shortcomings despite its proximity to a port. Local economic operators point to a heavy administrative burden and criticize the opacity of procedures and the inflexibility of Tunisian regulations. These factors hamper the country’s ability to attract cutting-edge industries despite ambitions to diversify the economy.

Algeria is approaching the development of free trade zones with an ideology inherited from the post-Soviet era, meaning inflexibility and pesky local ownership rules. The Bellara free zone (in the wilaya, or administrative district, of Jijel) is specialized in the steel industry as part of the country’s effort to diversify its economy, which is mainly dependent on hydrocarbons. New free zones are planned at the port of Djen Djen, in Bouchebka, and in the wilaya of El Tarf. Nonetheless, the country’s structural challenges remain enormous.

For foreign companies in Algeria, the complex bureaucracy and frequent regulatory changes create challenges such as import quotas, restrictions on access to foreign currency, and the 51/49 rule, which requires 51 percent Algerian ownership of projects. One of the difficulties for foreign companies is to retain the employees they have trained, who are often tempted to resign to earn double their salaries outside the free trade zone. Some headhunting firms specialize in recruiting these highly sought-after talents on the local market, cannibalizing the country’s human resources pool.

The search for an economic model for the Maghreb

Contemporary business in the Maghreb is characterized by different types of economic zones: free trade zones, industrial acceleration zones and special economic zones. In the absence of a coordinated regional strategy, each country has developed its own model, enabling each to capitalize on its comparative assets and attract investments according to its priorities. However, the lack of harmonization of fiscal, customs and regulatory frameworks between Maghreb countries hampers the fluidity of intra-regional trade crucial to North Africa’s attractiveness.

This absence also hinders the creation of an interconnected labor market that could benefit the entire region. The notion of talent mobility and what Europeans or North Americans would call the entrepreneurial spirit, however, remains alien to local habits.

The Maghreb’s free trade zones face intense global competition from places such as China or Central and Eastern Europe. The Shenzhen FTZ in China generates prodigious amounts of foreign direct investment – around $140 billion in 2023 alone. Its lure is based on advanced infrastructure and high-tech expertise available locally, creating an attractive environment for innovative companies. By comparison, the economic zones in the Maghreb have limited high-tech capabilities, and industries that require highly skilled labor often look elsewhere.

In the EU’s eastern regions, countries such as Poland have created more than 14 special economic zones with the support of the bloc’s subsidies, attracting nearly $15 billion of investment in the technology and automotive sectors. This is in direct competition with the ambitions of the Maghreb, particularly in the automotive industry, in which Morocco and Tunisia are trying to make their mark.

To attract multinationals for the longer haul, the Maghreb’s economic zones must offer not only favorable taxation schemes but also an innovation-friendly ecosystem that enables companies to benefit from local expertise. So far, Maghreb countries have not developed a technological environment comparable to other global or African regions, which limits their attractiveness for cutting-edge industries. A lack of high-tech infrastructure and advanced skills, particularly in areas such as Artificial Intelligence, reduces the ability of these areas to develop into technology hubs.

Tactical options for North African trade

For investors seeking access to national markets in the Maghreb, a critical question is whether the use of free trade zones can unlock local demand. Are these zones merely links in global production chains, or can they play a strategic role in facilitating deeper penetration of local and regional economies? As multinationals consider accessing domestic and regional markets from this perspective, several obstacles are worth noting.

Free trade zones in the Maghreb struggle to integrate their activities into the local economy and contribute to sustainable development. They often operate in isolation from the local economic fabric, with workers mainly assigned to basic tasks such as assembly. The standardization of tasks limits the need for higher skill sets, for example in engineering or research and development. This, in turn, reduces skills development in the local workforce and limits the reach of multinationals beyond the special zones.

The current situation in North Africa presents a significant challenge for investors seeking to enter industrial activities such as new materials chemistry or electromagnetics. The highly specialized nature of these fields makes it challenging for new entrants to gain the expertise needed to succeed, as there is a limited pool of individuals with the requisite skills.

International corporations seeking to utilize the region to complement operations in nearby areas, such as Europe, can develop local capacity by transferring expertise and know-how to local companies. However, local small and medium-sized enterprises, often organized on an informal basis, have few links with multinationals and gain little from their presence.

For multinationals seeking access to local markets from the vantage point of free economic zones, the issues are complex. In many cases, access depends on the ability to mobilize political support. For Renault in Morocco, the support of the government in Rabat was crucial in raising the brand’s profile and facilitating its integration into the national market. The importance of political intervention underlines the business climate that international corporations must adapt to for their investments to pay off.

The dark side of the Maghreb’s free zones

As logistical hubs for the import and export of goods, free trade zones in the Maghreb face problems of smuggling and counterfeiting. Tax incentives attract unscrupulous operators who see an opportunity to engage in illegal activities, a scourge in the textile and consumer goods sectors. Large fast-fashion clothing chains suffer from the theft of products later found in local souks at bargain-basement prices, still with their original labels.

It is difficult to estimate the percentage of products smuggled out and sold locally. A French car manufacturer discovered that spare parts were disappearing from assembly lines to be resold locally. Site security is entrusted to local companies that pay low wages and impose difficult working conditions – so untoward that some less scrupulous employees become corrupted and look the other way.

North Africa’s free trade zones are also facing a growing problem of industrial espionage, affecting roughly 15 percent of companies. Although the percentage is approximate and varies from zone to zone, it underlines a serious threat to companies located in these areas. Espionage techniques use sophisticated cyber attacks such as Trojans and man-in-the-middle attacks to gain access to sensitive corporate data.

The weakness of security systems and anti-corruption measures exposes companies to the risk of undetected intrusions, compromising the confidentiality of their know-how. This lack of protection is a problem, especially in an environment of increasing global competition and digitalization. Reports by industrial security consultancies such as Control Risks, PwC and Deloitte, highlight these structural weaknesses in North African special economic zones, pointing to recurring threats of cyber espionage and infrastructure vulnerabilities.

By Baba Yunus Muhammad

As Nigeria enters 2025, the future remains uncertain. Amid mounting challenges, citizens are grappling with escalating food prices, a crumbling currency, and systemic instability. What seemed like renewed hope at the beginning of President Bola Ahmad Tinubu’s administration appears, to many, as an elusive dream. The reality has been marked by pain, not progress, and the toll on the average Nigerian is growing.

The State of the Nation: Rising Struggles and Diminished Lives

In the past year, Nigerians faced unprecedented economic turbulence. The removal of fuel subsidies resulted in a staggering 500% increase in petrol prices. This, coupled with the deregulation of the foreign exchange market, saw the naira’s value plummet, depreciating over 100% between October 2023 and October 2024. To mitigate the effects, the Central Bank of Nigeria hiked interest rates from 15.5% in October 2023 to 27.25% in September 2024 in an effort to curb inflation, which had spiraled to a staggering 34.6% by November 2024.

Despite these efforts, the average Nigerian is witnessing the decline in their standard of living. Everything is becoming more expensive—food, transportation, energy, healthcare, and education. People are no longer just talking about survival; they are questioning how much longer they can endure.

A harrowing illustration of this suffering came in December 2024 when scores of Nigerians tragically lost their lives in a stampede while attempting to access food palliatives. The incident, which occurred in several locations nationwide, serves as a grim reminder of how dire the situation has become. When access to basic sustenance leads to such tragic outcomes, it paints a clear picture of a nation in crisis.

Moreover, new initiatives such as tax reforms, a student loan scheme, and an increased minimum wage are announced, but their real impact has yet to be felt. Rather than bringing prosperity, these reforms have bred frustration and discontent. Widespread protests, such as the August 2024 #EndBadGovernance movement, indicate that the patience of the Nigerian people is rapidly running out. The administration’s calls for patience and assurances of eventual positive outcomes only seem to deepen the sense of disillusionment.

The Illusion of Progress: Is Hope Enough?

While certain economic measures, like the removal of subsidies, were praised internationally for addressing long-standing issues, they failed to alleviate the immediate hardships faced by Nigerians. The administration’s ongoing commitment to these policies has sparked debates over whether true reform is possible or if Nigerians are simply becoming the collateral damage of ill-conceived strategies. As a result, the country finds itself trapped in a cycle of self-inflicted economic hardship, teetering on the edge of an economic disaster unless fundamental changes are made.

The question arises: Can Nigeria truly rebound from this abyss? Historically, misguided policies, no matter how well-intentioned, have often paved the way for suffering. Recall the economic policies of the former Buhari administration, hailed at the time as transformative, only for their implementation to worsen inequality, stifle innovation, and deepen poverty.

The current trajectory shows eerie similarities to this past failure. Far too often, policies are drafted with little regard for Nigeria’s unique economic realities, and instead, are designed to appease international bodies or satisfy external stakeholders. However, the current challenges demand more than foreign validations—they call for homegrown solutions grounded in an understanding of Nigerian lived experiences.

An Alternative Path: The Key to Sustainable Prosperity

Nigeria is blessed with an abundance of intellectual capital, innovation, and human resources capable of guiding the country to a brighter future. Across various sectors—agriculture, technology, healthcare, and education—Nigerians have consistently proven their ingenuity and determination. However, leadership must step aside from entrenched thinking and open itself to alternative ideas. The long-term prosperity of Nigeria cannot be built on policies that dismiss dialogue and stifle innovation.

A new approach to policy-making is required—one that prioritizes sustainable growth through people-centered policies. This can be achieved by fostering an environment that encourages entrepreneurship, innovation, and sustainable job creation. Unlike the current tactics that fail to provide relief, bold economic leadership must cultivate self-reliance, ensure that resources are utilized optimally, and build upon Nigeria’s strengths.

Growth should not be seen as a sacrifice. Economic development that benefits the people need not come at the cost of their suffering. Nigerians must not continue to bear the brunt of failed policies as if enduring hardship is a necessary path to a better future. For the people to feel the effects of reform, policies must address immediate needs, reduce the cost of living, create job opportunities, and ensure that essential services like healthcare and education are not out of reach.

A concrete focus on rebuilding essential infrastructures, such as energy and transportation networks, can uplift Nigeria’s manufacturing sector and make the country a competitive force on the global stage. Importantly, policies must focus on equitable growth—ensuring that the benefits of economic progress are felt by all Nigerians, especially those in rural areas who bear the brunt of inflation and rising living costs.

Development finance is the invisible glue that connects public and private financing for projects that have social, economic and environmental outcomes. These include improved infrastructure, better waste management and sanitation, financial inclusion, clean energy and sustainable agriculture.

The goal of development finance is to create positive social, economic or environmental outcomes through investments made by financial institutions such as banks, insurance companies and pension funds in addition to contributions made by development finance institutions, multilateral partners and NGOs. These investments generally generate spillovers into the development agendas of African countries. The contribution of NGOs such as philanthropic and civil society organisations may not be financial. Their contributions come through advocacy, activism, community engagement, research or social services. Development finance experts Latif Alhassan and Bomikazi Zeka explain how it works.

Why is it important?

Development finance addresses the failures or limitations of traditional financial institutions such as banks. It does this by allocating resources to social needs such as education, health, infrastructure and energy.

The essence of development finance is to mobilise both financial and non-financial resources through partnership among development funders and stakeholders. The aim is to achieve development outcomes that would not have happened without their intervention or contribution.

The Infrastructure Consortium for Africa is an example of this kind of partnership. It is made up of multilateral partners and development finance institutions. In 2019/2020 it mobilised and invested US$83 billion for the development of energy, water, transport and sanitation infrastructure.

Development finance can also draw in additional funding from private entities to finance projects with socially and environmentally desirable outcomes. Traditional financial institutions such as banks don’t have the incentives to do this. But a network of development funders and stakeholders can help raise funding. It can also draw on different kinds of expertise.

What’s the difference between development finance and corporate finance?

Corporate finance emphasises the principles of risk and return. The funding of any economic activity largely depends on how risky the activity is and its ability to generate revenue. Institutions like banks, asset managers and insurance companies make investment decisions on the basis of risk versus return. This makes it harder to fund projects and activities with sustainable development outcomes because the risks are often high. And revenue streams aren’t always assured. An example would be providing finance for small businesses.

Development finance considers other factors alongside risk and return. Social impact may be one. Because it applies a wider lens, other key players are more involved. They include:

• governments at national, provisional and local level
• multilateral partners (such as donor agencies and climate funds)
• development finance institutions like the World Bank Group, African Development Bank, Afrexim Bank, Industrial Development Corporation, Development Bank of Southern Africa and Development Bank of Nigeria
• NGOs (philanthropic organisations and civil society organisations).

Financial institutions, such as banks, insurance companies, investment companies and pension funds, do also get involved sometimes. But this is usually through the use of responsible investment strategies. These incorporate environmental, social and governance factors into investment decisions.

Development funders provide more than just debt and equity capital. They provide concessionary loans, venture philanthropy, project finance, grants, sustainable financial instruments (such as green bonds and other forms of responsible investing) and advocacy or activism engagements.  Development finance institutions are intentional about promoting sustainable development. Instruments such as venture and patient capital recognise that small businesses face funding and cash flow challenges. They allow for more flexibility in lending arrangements.

How do countries access it? Is it harder for African countries?

In Africa, development projects have traditionally been funded by national governments through annual budgetary allocations. In some cases national development banks have been set up.

The problem with relying on national budgets is that it places a lot of pressure on the taxpayer as a source of revenue.

Huge financial commitments are required for countries on the continent to achieve the development goals they’ve set for themselves. For example, the African Union plans to transform Africa into a global powerhouse by the year 2063. For its part, the United Nations has an agenda for all countries to carry out a sustainable development plan by 2030.

The annual estimated funding requirements to achieve these plans is US$200 million. The financing gap for the African context until 2030 is US$1.6 trillion. Collaboration with development funders and stakeholders is needed to achieve this.

What three things stand out as windfalls from development finance?

Firstly, stimulating economic activities by financing the initiatives of vulnerable or marginalised groups. For example, women-owned businesses find it difficult to access funding. Development finance institutions are well placed to step in. Examples include the Development Bank of Ghana, Development Bank of Namibia, Development Bank of Mauritius and Eswatini Development Finance Corporation. They can help local businesses to keep afloat during tough times. For example, the Small Enterprise Finance Agency was set up in South Africa to help businesses affected by the rioting in 2021.

Secondly, assisting with infrastructure development. Projects can be funded that align with the needs of communities, private stakeholders and the public sector.

Thirdly, financing global challenges such as the just energy transition and the effects of climate change. For instance, development finance institutions have spearheaded the funding of climate mitigation and adaptation measures, through the provision of US$120 billion in 2012. This went up to US$200 billion by 2018.

Courtesy: The Conversation