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Economic Zones as tools of development strategy in Iraq

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Presented at the 5th Meeting of the Working Group on Investment Zones in Iraq, MENA-OECD Investment Programme. 28 April 2013, Cairo, Egypt

Presented at the 5th Meeting of the Working Group on Investment Zones in Iraq, MENA-OECD Investment Programme. 28 April 2013, Cairo, Egypt

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  • 1. UNIDO Iraq Programme Office Economic Zones as tools of development strategy Asif Hasnain, Senior Economic Development Expert, UNIDO Thomas Flynn, MENA-OECD Investment Programme 28-29 April 2013, Cairo United Nations Industrial Development Organization
  • 2. UNIDO Iraq Programme Office Why Presentation • • Align government thinking on economic zones Define different levels of issues in the overall strategy for economic zones 2
  • 3. Content and Structure Presentation • • • • Development Goals Policies Tools Technical Issues 3 UNIDO Iraq Programme Office
  • 4. Iraq’s Development Goals and Policies and Tools • Iraq’s National Development Goals (Objectives) – – – – – • Employment Economic Diversification Private Sector Development Technology Development Regional Development Policies (Means) – – – – – Private Sector Development Trade Technology Transfer Human Resources Development Etc. 4 UNIDO Iraq Programme Office
  • 5. What are the tools to realise goals? • • • Fiscal and budgetary tools Trade policy Investment policy – Economic Zones 5 UNIDO Iraq Programme Office
  • 6. UNIDO Iraq Programme Office Economic Zones • Purpose of Economic Zones – What are Economic Zones? q q q q q q Geographically delimited area, usually physically secured (important in post-crisis contexts) They offer benefits based on physical location within the zone (and can have a separate customs area and streamlined procedures - World Bank 2009) Designed to stimulate domestic and/or foreign investment and production Provide a range of incentives and services to hosted companies Poles of growth In Iraq’s case, all should be aligned to work towards fulfiling development goals 6
  • 7. UNIDO Iraq Programme Office Context in Iraq • Why Economic Zones? Why different types? – – – – Shift from a state-based approach to work with private sector and local institutions Can support economic diversification efforts Address weaknesses in economy Different kinds of zones, depending on policy objectives q Industrial zones, investment zones, Export processing zones, Free Zones, Technology Parks USAID 2012 JAPU Iraq 7
  • 8. UNIDO Iraq Programme Office Economic Zones • Zones share many things – – • Security, infrastructure, and licensing In many successful instances, similar legal regimes Policy defines the different kinds of zone – Investment Zones offer incentives oriented to attract foreign investors q q – Industrial Zones: both domestic and foreign investors q – – – Sector targeting, developing new industries, and attract FDI Close collaboration with an anchor tenant Especially in manufacturing and support services Export Processing and Free Zones work under specific customs regimes to facilitate regional/international trade In other countries, technology parks and business incubators are focused (sectoral) facilities designed to facilitate technological diversification None of these different types of zone are competitive as concept 8
  • 9. Level of technology and foreign capital Investment and Industrial Zones (Suggestions) UNIDO Iraq Programme Office Investment Zone Independent Enterprises or Clusters Technoparks and Incubators Industrial Zone Extent of support services and incentives provided 9
  • 10. Current issues in Iraq vis-à-vis zone development • UNIDO Iraq Programme Office Advantages: – – – – Growing market Certain potential advantage for trade – strategic location (East-West corridor) Land and natural resources availability Oil and gas sectors offer opportunities for diversification q – Provide capital for investment Skilled labour force 10
  • 11. Current issues in Iraq vis-à-vis zone development (cont.) 11
  • 12. Current issues in Iraq vis-à-vis zone development • UNIDO Iraq Programme Office Challenges: – – Co-ordinate stakeholders (central and local governments, private sector…) Develop zone administration and legislations to allow for flexibility q – – – – – One-stop shop, how to delegate authority? Weak level of infrastructure Undefined financing options for zone development Productivity gaps between hydrocarbons and the rest of the economy Dependence on SOEs Risk of ventures into new sectors and costs of self-discovery 12
  • 13. Moving forward with industrial and investment zone development • UNIDO Iraq Programme Office Unified SEZ Strategy, connected with an overall industrial development plan – – Streamlined legal and regulatory framework, work with what is there Co-ordination amongst stakeholders – creation of zones in Iraq should not be the work of one institution only, can have multiple institutions • Development approach: regulatory or administrative approach? • Involvement of the private sector in the design and management of zones – Management contracts, then direct investment infrastructure and services, then PPP? 13
  • 14. Moving forward with industrial and investment zone development (cont.) • Approach to development – decentralisation and clear sharing of roles and responsibilities q q • Central Government: Legal/regulatory framework, land allocation, incentives, investment promotion, financing, sovereign investment guarantees Local Governments: Zone management, licensing, infrastructure and security provision, services, land, holding municipal authority (construction permits etc. …) Where do we start? – – Key is to define different policy objectives for different kinds of zone Mechanisms of developing and administering zones can be relatively the same across the types q q Many models of: contracting to private providers of support services to privately developed and managed zones Iraq? State defray risk 14
  • 15. UNIDO Iraq Programme Office Economic Zones in Poland Source: PWC 15
  • 16. UNIDO Iraq Programme Office SEZ Attractiveness • Location: Heart of Europe – • Cost: Low labour costs, but skilled – • 750 EUR avg. monthly remuneration Structural funds and national programmes intended for investment grants and creation of new jobs – • Access to Germany, Russia, and former USSR Offered to Polish enterprises Infrastructure Source: DAFZ.ae Katowice SEZ Source: Gilwice.eu 16
  • 17. q q q q q q q q q q 17 Zone management and promotion Support to develop further investment projects Provision of business support services to hosted companies Zone promotion and expansion (geographical or thematic expansion, e.g. from SEZ to technological park) Allocation of land Special Economic Zone status granted Financing of main infrastructure/utilities First investors attraction (role of domestic investors) Zone development Political initiative Problem identified locally (e.g. collapse of the main employer) Awareness raising and mobilisation of local stakeholders Negotiation locally and co-ordination with central government Polish Model of SEZ Development UNIDO Iraq Programme Office
  • 18. UNIDO Iraq Programme Office Results • • • 14 SEZs in 143 cities and 203 municipalities 1222 companies operate in the zones based on 1466 permits The value of carried out investments is 27 billion USD – • • Micro-economic value State aid via tax exemptions (company tax – CIT) from the beginning of the functioning of zones until the end of 2011 was 4 billion USD which is 13.2% of the incurred investment costs 250,000 persons are employed in SEZs, of which 183,000 are newly created jobs Source: Polish Ministry of Economy. 18
  • 19. Lessons learned from the Polish Experience l l l l l l A specific, reviewed legal regime to ensure successful and sustainable development Have a clear policy objective Role of Polish domestic companies/SMEs Co-ordination amongst stakeholders Relevance of the Polish “bottom-up”/decentralised approach Relevance of having a clear and appropriate incentive system. – l Financial incentives in Poland, in Iraq? Relevance of a clear investment promotion strategy and an institutional support framework – – l UNIDO Iraq Programme Office One stop shop and business support services Zone development  revitalisation of State-Owned Enterprises and support the transition from planned economy to market economy 19
  • 20. Moving forward with zone development • Must move the effort forward to develop SEZs forward – Look to governorates  What role NIC can play? What role can the PICs play? q • Poland example Emphasise the commonalities between zones – – – • • UNIDO Iraq Programme Office Flexibility of zones Possible: Take advantage of organic growth possibilities, what can the Iraqi private sector offer?  then, work with foreign investors Need for a successful example – develop a zone, see what works, trial and error Need for co-ordination amongst stakeholders Possibilities for a single legal framework, but can still have multiple zone authorities 20