Economic Zones as tools of development strategy in Iraq
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
3. Content and Structure Presentation
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Development Goals
Policies
Tools
Technical Issues
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UNIDO Iraq
Programme
Office
4. Iraq’s Development Goals and Policies and
Tools
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Iraq’s National Development Goals (Objectives)
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Employment
Economic Diversification
Private Sector Development
Technology Development
Regional Development
Policies (Means)
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Private Sector Development
Trade
Technology Transfer
Human Resources Development
Etc.
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UNIDO Iraq
Programme
Office
5. What are the tools to realise goals?
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Fiscal and budgetary tools
Trade policy
Investment policy
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Economic Zones
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UNIDO Iraq
Programme
Office
6. UNIDO Iraq
Programme
Office
Economic Zones
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Purpose of Economic Zones
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What are Economic Zones?
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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
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7. UNIDO Iraq
Programme
Office
Context in Iraq
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Why Economic Zones? Why different types?
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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
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Industrial zones, investment zones, Export processing zones, Free
Zones, Technology Parks
USAID 2012
JAPU Iraq
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8. UNIDO Iraq
Programme
Office
Economic Zones
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Zones share many things
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Security, infrastructure, and licensing
In many successful instances, similar legal regimes
Policy defines the different kinds of zone
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Investment Zones offer incentives oriented to attract foreign investors
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Industrial Zones: both domestic and foreign investors
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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
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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
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10. Current issues in Iraq vis-à-vis zone
development
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UNIDO Iraq
Programme
Office
Advantages:
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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
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Provide capital for investment
Skilled labour force
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12. Current issues in Iraq vis-à-vis zone
development
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UNIDO Iraq
Programme
Office
Challenges:
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Co-ordinate stakeholders (central and local governments, private sector…)
Develop zone administration and legislations to allow for flexibility
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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
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13. Moving forward with industrial and
investment zone development
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UNIDO Iraq
Programme
Office
Unified SEZ Strategy, connected with an overall industrial development plan
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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
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Development approach: regulatory or administrative approach?
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Involvement of the private sector in the design and management of zones
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Management contracts, then direct investment infrastructure and services, then
PPP?
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14. Moving forward with industrial and investment zone
development (cont.)
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Approach to development – decentralisation and clear sharing of roles and
responsibilities
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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?
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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
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Many models of: contracting to private providers of support services to privately developed and
managed zones
Iraq? State defray risk
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16. UNIDO Iraq
Programme
Office
SEZ Attractiveness
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Location: Heart of Europe
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Cost: Low labour costs, but skilled
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750 EUR avg. monthly remuneration
Structural funds and national programmes intended for investment grants and
creation of new jobs
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Access to Germany, Russia, and former USSR
Offered to Polish enterprises
Infrastructure
Source: DAFZ.ae
Katowice SEZ
Source: Gilwice.eu
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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
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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
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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.
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19. Lessons learned from the Polish
Experience
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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.
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Financial incentives in Poland, in Iraq?
Relevance of a clear investment promotion strategy and an institutional
support framework –
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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
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20. Moving forward with zone development
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Must move the effort forward to develop SEZs forward
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Look to governorates What role NIC can play? What role can the PICs play?
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Poland example
Emphasise the commonalities between zones
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UNIDO Iraq
Programme
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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
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