special economic zones in the oic member countries ... · objective assessment of effectiveness of...

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S P E C I A L E C O N O M I C Z O N E S I N T H E O I C M E M B E R

C O U N T R I E S : L E A R N I N G F R O M E X P E R I E N C E

COMCEC 10th Meeting Trade Working Group, 2nd November 2017, Ankara

P R E S E N TAT I O N 1 : G LO B A L E X P E R I E N C E S O F S E Z P R O G R A M M E S

Professor Jim Coleman, Simon Thurley


1. Study Outline

2. Global Context

3. SEZ Definition

4. Global SEZ Trends

5. Key Considerations & Challenges

P R E S E N TAT I O N S T R U C T U R E

2

Source: Locus Economica (2015)


1 STUDY OUTLINE

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Experiences, lessons learnt and best practice globally and within OIC Member Countries

Objective assessment of effectiveness of SEZs in the delivery of economic benefits

Primary study objectives:

1. Provide a resource document on OIC SEZ development

2. Explore performance and economic impact of SEZ implementation in OIC Member

Countries, including study visits; and

3. Provide policy options and guidelines for developing and implementing successful

SEZ programmes

S P E C I A L E CO N O M I C Z O N E S I N T H E O I C R E G I O N : L E A R N I N G F R O M

E X P E R I E N C E - S T U D Y O U T L I N E

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S P E C I A L E CO N O M I C Z O N E S I N T H E O I C R E G I O N : L E A R N I I N G F R O M

E X P E R I E N C E - S T U D Y M E T H O D O LO G Y

5

Comprehensive Research

and Review of SEZ

Literature

Collation of Data on OIC

SEZs and Comparative

Benchmarking

Year established, size, sectoral focus

and spatial characteristics (e.g.

distance to port)

Employment creation, number of

firms, export values & output

In-Depth Case Study

Analysis including Site

Visits to OIC SEZs

Desk-based case study research

Conduct of surveys and interviews with

SEZ regulators, developers, operators

and users

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Example Data


2 GLOBAL CONTEXT

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International trade based on maximising comparative advantages

Use of SEZ type formats to support economic growth across global regions

African and Asian countries seeking accelerated economic growth through

diversification

Global economic priorities include:

• Diversification away from reliance on raw commodities/minerals exports;

• Increased value addition in production activities; and

• Large volume job creation and income enhancement.

Need to assess role of SEZs in this context

I N T E R N A L & E X T E R N A L CO N T E X T


3 SEZ DEFINITION

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In broad terms, SEZs can be defined as demarcated geographic areas contained within a country’s

national boundaries where the rules of business are different from those that prevail in the national

territory

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• Demonstrate commitment to foreign investment

• Creation of effective investment environments

• Reduce investment risksAttracting FDI

• Economic diversification away from resource-based economy

• Knowledge transferFacilitating Economic

Diversification

• Stimulate significant job growth

• Reduce poverty rates & increase living standards

• Upgrading local and regional skills base

Employment Creation and

Skills Upgrade

• Move industrial activities up the value chain

• Plug gaps in value chain segments

• Increased industrial resilience and integrated production processes

Deepening and Extending

Industry Value Chains

T H E E CO N O M I C R AT I O N A L E F O R I M P L E M E N T I N G S E Z P R O G R A M M E S

I S VA R I E D B U T T H E R E A R E A N U M B E R O F CO M M O N T H E M E S

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• Experimentation with new economic legislation, regulations and

policies

• Incubators for policy reform

Wider Economic Reform

and Experimentation

• Exports to foreign markets

• Help to manage inflation levels and respond to balance of payment

crises

Foreign Currency

Accumulation

• Specialised clusters of economic activity

• Creation of high value products / services

• Improved international competitiveness

Creation of Economic

Clusters

T H E E CO N O M I C R AT I O N A L E F O R I M P L E M E N T I N G S E Z P R O G R A M M E S

I S VA R I E D B U T T H E R E A R E A N U M B E R O F CO M M O N T H E M E S

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•Duty free areas offering warehousing, storage and distribution facilities

•Trade, trans-shipment and re-export activitiesFree Trade Zone (FTZ)

•Industrial estates

•Production of goods for export to foreign marketsExport Processing Zone (EPZ)

•Sub-divided zones

•General industrial zone + EPZ area reserved for export orientated EPZ enterprisesHybrid EPZ*

•Revitalisation and regeneration objectives

•Tax incentives and financial grantsEnterprise Zone (EZ)

•Large area

•Wide range of activities including tourism, retail and on-site residenceFreeport

•Incentives provided to enterprises regardless of location

•Do not have to locate within designated zone to receive benefits and privilegesSingle Factory EPZ

•Science / technology parks, petrochemical zones, logistics parks and airport

based zonesSpecialised Zones

T H E R E A R E S I X B R OA D T Y P O LO G I E S O F S P E C I A L E CO N O M I C Z O N E S

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*not universally accepted


S E Z S H AV E D E F I N E D S PAT I A L C H A R AC T E R I S T I C S A N D R AT I O N A L E

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United Arab Emirates Kenya


Investment

Conditions

• Provision of

Infrastructure

• Serviced Land

• Flexible lease and

purchasing

arrangements

International Trade

and Customs

• Access to tariff and

duty free imports

Taxation

• Corporation taxes

• VAT

• Labour

Contributions

Regulatory

Environment

• Efficiency

• One-stop-shop

• Licensing

• Operations

D I F F E R E N T I A L CO N D I T I O N S P R I N C I PA L LY D E A L W I T H F O U R P I L L A R S

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Improved Business Environment


S E Z S A R E T Y P I C A L LY D E F I N E D BY T H R E E D I S T I N C T I V E AT T R I B U T E S

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Improved Business Environment

Special Economic Zone

Dedicated

Regulatory

Regime

Legal

Framework

Dedicated

Governance

Structure

Administrative

Framework

Dedicated

Physical

Infrastructure


Regulator

• Typically government body with oversight authority

• Ensures regulatory environment effective + streamlined

Developer

• Private or public sector or quasi-public body

• Design, planning and management of infrastructure, real estate and services

Operator

• Private or public sector or quasi-public body

• Day-to-day management of services to investors, tenants and workforce +

investment promotion and marketing

S E Z S H AV E A T Y P I C A L O RG A N I S AT I O N A L S T R U C T U R E

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Fiscal and

Financial

Incentives

Corporate &

Income Tax

Allowances

Repatriation of

Profits

Exemption

from export

duties

Exemption

from indirect

taxes

Exemption

from import

duties

Exemptions

from other

national,

regional and

local taxes

S E Z P R O G R A M M E S A R E D E F I N E D BY T H E I M P L E M E N TAT I O N O F

I N C E N T I V E S TO AT T R AC T I N V E S T M E N T

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Non-fiscal

incentives

Simplified

customs

arrangements

No restrictions

on foreign

workers

100% foreign

ownership

Bespoke

Infrastructure

Single window

fast-track

clearances

Sale of goods

in domestic

tariff area


4 GLOBAL SEZ TRENDS

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“Zones cannot and should not be viewed as a substitute for acountry’s larger trade and investment reform efforts. They

are one tool in a portfolio of mechanisms commonly employed to create jobs, generate exports and attract foreign investments,

through the provision of incentives, streamlined procedures and custom-built infrastructure”

19

Source: FIAS/World Bank, Special Economic Zones: Performance,

Lessons Learned and Implications for Zone Development


Estimated to be 3,500 SEZs globally in mid 2000’s

Rapid increase from 170 zones in 1980s

Predominant typology changed from traditional EPZ model to mixed use SEZ

Emergence of highly specialised zones focused on high end services

Critical success factors include ability to:

• Attract investment and generate economic growth – $850 billion in international

exports;

• Create jobs – 66 million worldwide;

• Deliver structural economic transformation and catalyse reform; and

• Achieve success with regards to social and environmental objectives.

T H E R E H A S B E E N A S I G N I F I C A N T I N C R E A S E I N T H E N U M B E R O F S E Z

P R O G R A M M E S D E V E LO P E D G LO B A L LY O V E R T H E PA S T 3 0 Y E A R S

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1. Private sector involvement in SEZ development

2. Development of unique value propositions against a globally competitive investment

environment

3. Cooperation between countries in developing SEZs - Chinese investment within Africa

4. Relationship between FTAs and SEZs

5. Emerging importance of environmental and sustainability credentials – Eco-industrial

Parks

6. Development of Cross Country and Tripartite SEZs

T H E R E A R E A N U M B E R O F E M E RG I N G G LO B A L T R E N D S O B S E R V E D I N

S E Z D E V E LO P M E N T

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5 KEY CONSIDERATIONS AND

CHALLENGES

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National Economic

Objectives

Analysis of Barriers

/ Constraints to

Growth and

Investment

T H E S E L E C T I O N O F S E Z S A S A P O L I C Y I N S T R U M E N T, N E E D S TO B E

B A S E D O N A R O B U S T U N D E R S TA N D I N G O F E CO N O M I C O B J E C T I V E S

A N D K E Y CO N S T R A I N T S TO G R O W T H A N D I N V E S T M E N T

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• Land & Infrastructure

• Business Environment

• Trade and Policy Regime

• Investment Policy & Fiscal Regime

• Skills, Wages & Productivity

• Structural Issues – e.g. geography, scale

• Others

Source: Farole, Baissac & Gauthier (2012)


T H E R E A R E A N U M B E R O F K E Y CO N S I D E R AT I O N S W H E N

D E V E LO P I N G S E Z P R O G R A M M E S

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•Driven by economic rationale / policy drivers

•Innovative configurations including ‘hybrid’ models

•Scale of zoneZone Typology

•On-site and Off-site Infrastructure provision

•Access to markets

•Labour force and skills

•Site selection and masterplan

Location

•Market analysis and demand

•Comparative advantagesSectoral Focus


T H E R E A R E A N U M B E R O F C H A L L E N G E S I N E S TA B L I S H I N G T H E

L E G A L A N D R E G U L ATO RY S E Z F R A M E W O R K

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• Roles and responsibilities – institutional stakeholders

• Institutional complexity & transfer of powers

• PPP arrangements

Governance

Structure

• Public vs private

• Dedicated SEZ entity

• One-stop-shop

Regulatory

Framework

• Dedicated SEZ law vs legislative amendments

• Incentives

• Clear link to objectives of SEZ programme

Legal

Framework


Unsustainable models of incentive frameworks

Ineffective tools for differentiation

Strong relationship between non-fiscal incentives and successful economic outcomes

Importance of wider investment climate – ‘Ease of Doing Business’ and legal transparency

Streamlined administrative and regulatory environments

One-stop-shop services

N O N - F I S C A L I N C E N T I V E S A R E I N C R E A S I N G LY I M P O RTA N T A S

FAC TO R S O F D I F F E R E N T I AT I O N B E T W E E N S E Z S

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Free Trade Agreements

• Conflicts with FTA/RTA/Customs

Unions

• Increased complexity for

investors

• Uneven investment landscape

• Trade Triangulation

Economic Effectiveness

• Compensation for overall lack

of competitiveness

• ‘Race to the Bottom’ incentive

frameworks

• National financial resource

distortion

• Sub-optimal strategy compared

to national/regional reform

programmes

N U M B E R O F K E Y C H A L L E N G E S I N D E V E LO P I N G E F F I C I E N T A N D

E F F E C T I V E I N C E N T I V E F R A M E W O R K S

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T H E R E A R E A N U M B E R O F C R I T I C I S M S A N D C H A L L E N G E S FAC I N G

T H E I M P L E M E N TAT I O N O F S E Z P R O G R A M M E S

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• SEZs developed as ‘quick fixes’

• Isolated free market enclaves

• Treatment of firms inside vs outside zones

Economic enclaves vs

economic reform

• Unequal treatment of some groups

• Suppression of labour standards and labour rights

• Poor employment conditions

Labour rights, wages

and working

conditions

• Lax environmental standards and regulations

• Adverse environmental impacts

• Implementation of environmental monitoring

Environmental

Impacts


T H E R E I S A S T R O N G R E L AT I O N S H I P B E T W E E N T H E E CO N O M I C

P E R F O R M A N C E O F S E Z S A N D T H E I R I N T E G R AT I O N I N TO T H E

W I D E R E CO N O M Y

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Labour market

development &

skills upgrade

Specialised

training and

education

Supply chain

development

Infrastructure

investment and

resilience

Marketing and

brand

communication Complementary

Policy and

Programmes


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