Integrating Special Economic Zones into Economic Development Strategies, 7th Working Group Meeting on Investment Zones in Iraq, Thomas Flynn, Policy Analyst, MENA Division, GRS, Paris, France
17 February 2015
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Integrating Special Economic Zones into Economic Development Strategies
1. Integrating Special Economic Zones into
Economic Development Strategies
7th Working Group Meeting on Investment Zones in Iraq
Thomas Flynn, Policy Analyst, MENA Division, GRS
Paris, France
17 February 2015
2. Purpose of presentation
• Define utility of SEZs
• Examines ways to link SEZs to economic strategies
• Case study of Malaysia
3. What are SEZs? What do they offer?
For Iraq
• SEZs need to be tailored to
the Iraq context.
Potential benefits: spur
industrialisation,
diversification; perhaps
resolve land allocation
problems
• However, SEZs can distort
the economy because of
preferred legislation,
incentives, etc.
Could discourage wider
trade and investment
reform
• SEZs are…
One of various economic policy
instruments to support private sector
development and stimulate
investment
Can serve multiple policy objectives
• Similar goal: A secure, conducive
environment for enterprises
Developed and managed land,
subdivided into plots
Adequate on- and off-site
infrastructure and access to utilities
Support services for existing or new
businesses (e.g. business licencing,
training, incubation)
Perhaps offer fiscal or commercial
incentives, access to finance
4. Portfolio of SEZs
Why different zones? Depends on policy objectives
• Industrial Zones can be for both domestic and foreign investors, especially
in manufacturing and support services
• Export Processing and Free Zones work under specific customs regimes to
facilitate regional/international trade and support export-oriented
manufacturing
• Investment Zones offer streamlined regulations and licencing and
incentives to attract foreign investors and develop new industries
• In other countries, technology parks and business incubators offer high-
level support services
Therefore, one country can have different zones depending
on policy objectives
5. Different types of SEZs
5
Extent of support services and incentives provided
Leveloftechnologyandforeigncapital
Industrial Zones
Technoparks
and Incubators
Independent
Enterprises or
Clusters
Investment
Zones
7. Basis for an SEZ strategy (part 2)
• SEZ strategy should be integrated
into national development plans
Funnel national policy into specific
policies, ensures linkages
The policy framework for the
strategy must be flexible to adjust to
evolving economic development
priorities
If not…
Possible
objectives
for SEZ
strategy
SME
developm
ent
Industriali
sation
Job
creation
Technolog
y and
innovation
policyRegional
developm
entInvestmen
t and
trade
policy
Sector
developm
ent
Economic
diversifica
tion
Foreign
Exchange
• Balance: the SEZ strategy should focus
on achieving specific policy
objectives, aligned with country
development objectives; however,
based on market demand
8. Putting together an SEZ strategy (part 3)
• Sample Content of a
Strategy
• Background and
Rationale
• Vision and Objectives
• Legal and Regulatory
Framework
• Zone Regulator
• Zone Governance and
Administration
• Regulatory Relief – One
Stop Shops
• Zone Designation and
Land Usage
• Fiscal and Other
Incentives
• Monitoring and
Evaluation
• Financing Zones
SEZ
Strategy
Country
advantages
Trade and
investment data
analysis
Investor
survey
Benchmarking
of SEZs
12. • Multi-billion dollar project
launched in 1996
Land area: 15 km by 50 km (size of
Singapore)
• “It was never just about building
parks”
2011: MSC revenue: USD 10.4
billion
119,138 jobs created since its
inception
• 2011: 26 Cybercities and
Cybercentres in the MSC
Cyberjaya national Cybercity
capital
Putrajaya seat of Malaysia’s
government administration
Multimedia Super Corridor (MSC) and results
12
• Characteristics of Companies
in the MSC?
Basis Bay
N2N Connect
Nexustel
Yigitcanlar, et al.: “The case of Multimedia Super Corridor”
13. Lessons for Iraq
13
• Credible and long-term vision
MSC was positioned on the national agenda, part of an overall
economic development strategy, and all the initiatives were
linked locally
High level advisory boards and international experts on long-
term basis
Engage with potential anchor investors; invest in infrastructure
• Monitor and evaluate
• Flexibility and pragmatism in approach!
Editor's Notes
Environments where it is easier and cheaper for the private sector to engage in economic processes” (Claude Baissac)
Economic Policy Instruments
Create an alternative business environment
Provide needed inputs to encourage private sector development
Policy Objectives – to be explored
Jobs, exports, FDI, technology transfer, diversification, upgrading, etc.
There is no SEZ template that can be imposed – only lessons and considerations
“For economic zones to achieve their intended policy objectives, they should not be used as a substitute for a country’s larger trade and investment reform efforts
Economic Zones should be used as pilot and demonstrative projects with the aim of encouraging broader economy-wide reforms
The success of Economic zones depend on the extent to which they create linkages with the local economy thereby generating employment and increasing transfer of know how”
Policy objectives
Attract hi-tech industry need for the technology park
SME development industrial zone
Different zones according to policy objectives
However, important that SEZs should compete based on infrastructure and service provision and not on incentives
Inputs (from the presentation’s first slide)
Iraq has ________ SEZs can be a vehicle which concentrates the offer for potential investors
Contributes to:
Fulfil specific development objectives
“The programme must be an integral part of the national development strategy, rather than an alternative to it or an afterthought. It must have adequate support, but must also be evaluated against the objectives it has been given and against standard benchmarks of economic, fiscal, social and environmental impact. Appropriate time scales must be taken into considerations.” OECD SEZ Handbook
Negative consequences: local governments can overextend in acquiring land (or abuse land acquisition process without providing for compensation), competing on fiscal incentives, and rent-seeking
2) Linkages – what means? SEZs should not be isolated from the economy; they must ensure linkages
- FDI/SME links, encourage Iraqi businesses are connected with the SEZs (suppliers for example)
3) Specific: limited objectives: focus
- Example of Vietnam – focus SEZ programme on attracting FDI for technology transfer and employment
4) Flexible policy framework
Predictable policy environment -
guide: experimental model – “Innovating through implementation first, and drafting universal laws and regulations later”
Informed by monitoring and evaluation
To reduce risks for investors and discover cost structures and profitability.
Comparative advantages
Most derive from overall country/region strengths
Industries? Labour? Natural resources? Location? Market access?
Example of the Jebal Ali Zone (logistics, deep-water)
Trade and investment data
Overall and type of FDI flows into the region/globe?
Based on analysis, how to position and market investment opportunities in SEZs?
Investor survey
What do the “right type” of investors want?
How to attract anchor investors?
Benchmark
- Competitors: what are they offering? What are they not offering?
If an overarching economic development policy exists, clear and non-competing objectives have been set, alternative policy options have been compared, the risks and benefits of SEZs assessed, and the policy benchmarked with international good practices, then the ground has been prepared for a zone programme.
The MSC is a unique combination of the “Silicon Valley model” and specific Malaysian development strategy.
-- Develop a KBI
-- Rooted in FDI
1) New Economic Policy (1970-81) and Vision 2020 -- important to note that economic and the political are intertwined -- idea about decreased ethnic tensions and political stability through economic growth: poverty reduction regardless of race and eliminate ethnic disparity in economic differences
NEP -- much more state-dominated: SOEs, state-finance, etc.; contributed to economic growth, but then a shift to a more liberal
Vision 2020 – new view of economic development
Government/Stakeholder interaction key to fulfilling Vision 2020:
Connection between Malaysia industrial needs and SEZ strategy
Important sector: The local ICT industry is faced with a number of barriers and challenges that have historically inhibited its focus on R&D. These barriers must be removed for the innovation and research to move into marketable products and jobs.
Developing Kuala Lumpur a main component of overall MSC development (part of KL City Plan 2020) ‘enabling environments’ for ICT development
Goal of MSC: spur the development of the hi-tech industry
however, shift to a service-provision approach
“Innovating through implementation first, and drafting universal laws and regulations later”
Malaysia and incentives: system of incentives/specialised infrastructure are linked to skills development and technology upgrading (revise incentives to meet national development goals) for example, different periods of tax relief and tariff protection (adjusted over time and based objectives) – same policy objectives but flexible ways to attain them