USAID and UK Foreign Aid Cuts Create Opportunities for Focusing on SEZ Development

By George ELIOT

The ongoing or planned cuts in US (USAID), UK, French and German foreign aid spending create opportunities for the development of Special Economic Zones (SEZ) to fill at least part of the void that has opened up. In a world desperate for economic dynamism, SEZ can activate capital spending and mop up surplus labour.

This is what The Economist wrote in January 2024 in an article titled "Can satellite cities help solve Africa’s urbanisation challenges?"

“the point of charter cities is not to help the poorest directly, but indirectly. Strong governance, coupled with fiscal incentives, are intended to attract investment, the benefits of which will ripple through the economy.”

The biggest development aid donor countries in the world and their development aid spending (in USD) for 2022 were:

• USA: $55.3 billion
• Germany: $35 billion
• France: $19.6 billion
• Japan: $17.5 billion
• UK: $15.7 billion

However, in terms of development aid spending as a percentage of GDP per capita, the most generous countries in the world for 2022 were:

• Qatar, Turkey, Luxembour and Norway: with more than 1.0% of GDP
• Sweden and Germany: with more than 0.8%
• France and Denmark: with over 0.7%
• The Netherlands, the UK and UAE: with over 0.5% 

These billions and percentages look like a very distant past from the present perspective of cost-cutting by the major international donors. And even though the situation appears quite sad, one can still find silver linings at the edge of the cloud. 

In a March 6, 2025 analysis (titled "Aid cannot make poor countries rich"), The Economist highlights several key contradictions in the effect of international aid on the local economy and its general failure to lead to economic development:

• "Charles Kenny of the Centre for Global Development, a think-tank, notes: There is no country that has really grown from aid."

• "Aid economists treated poor countries as small rich ones that simply needed extra public investment."

• "It is hard to hand out enormous sums without turning poor countries into miniature command economies. Development projects mostly attempt to build entire industries, such as dairy farming or fisheries, from scratch. Disbursal conditions can have a faintly Soviet air."

• "Western aid officials often want to prevent local politicians, who control crucial industries, from profiting as a result of their projects, meaning they select obscure sectors for tax breaks, credit and subsidies. With few investors willing to stump up capital, and little interest from local politicians, the businesses duly flop."

• "Embryonic industries that are not favoured by aid officials barely stand a chance. Every year the best-connected and most-educated Malawians return from university abroad not to start a business, but to start a charity."

• "In 2015 Axel Dreher of Heidelberg University and Steffen Lohmann, then at the University of Göttingen, looked at local economic activity after the building of schools, social housing and other projects in a range of locations, and found no increase in the amount of electric light, their proxy for economic growth. There were not enough businesses to make use of locals’ new skills, he theorised."

The failure of international aid to lead to substantial business growth may be something to deplore, but it is more important to look at the future and turn the budget-cuts crisis into an opportunity to create the right conditions for the development of home-grown businesses. The easiest way to seed new business growth is through the launch of SEZ in key locations: near the major cities (capital cities or business capitals) and ports in a country.

For SEZ creation and SEZ growth to take root, the developing world would still need the policy support of the wealthier countries. International aid donors can also provide global connectivity, technology transfer and export markets. However, ultimately the success of a SEZ will depend on the creation of favourable local conditions and political support in their own country.

World map of major international donor countries (Source: Wikipedia)