Capturing the full potential of Special Economic Zones
GCC(Gulf Cooperation Council) economies are undergoing fundamental transformations in order to reduce their historical reliance on revenues from fossil fuels, build their non-oil GDP and create employment opportunities for their young, educated and growing populations.
Industrials and logistics have been identified as two core pillars to diversification agendas and key drivers of Foreign Direct Investments (FDI) into GCC economies. This is due to the region’s central location between three continents, sea access to marine’s busiest routes, cheap feedstock and utilities, and the financial ability to invest in enabling infrastructure and technologies.
In Saudi Arabia, the National Industrial Development and Logistics Program (NIDLP) was established with plans to transform the Kingdom into a leading industrial powerhouse and a global logistics hub by focusing on 4 key sectors; industry, mining, energy and logistics. Abu Dhabi 2030 vision entails developing a comprehensive and resilient infrastructure, while Kuwait’s national Development Plan 2035 aims to develop and modernize national infrastructure to improve quality of life for all citizens across the country. Qatar, through its National Vision 2030, is aiming for a more diversified economy by expanding industries and services and investing in world-class infrastructure.
Special Economic Zones (SEZs), used in this context as an umbrella term for free trade or export zones, have regained importance as key enablers to these national transformation programs, offering potential investors the ability to enter local and regional markets and the access to infrastructure, facilities and ancillary services.
Incidents like the COVID-19 pandemic with a sudden drop in oil price can serve as a catalyst for long- term sustainable economic reform. Governments will continue to scrutinize public spending plans more thoroughly for their economic returns and value-add to the security of critical local supply chain elements. The attraction of industrial sectors like pharmaceuticals or high-tech will be measured also for its strategic relevance in building required capabilities in addition to the prevalent metrics for economic impact.
Likewise, producers will have to align their manufacturing footprint strategies, often relying on a fail-safe global supply chain, towards a more regional hub model to maintain agility and continued proximity to core markets.
SEZs with a bespoke regulatory and incentive scheme constitute in this context an attractive proposition in the increasingly competitive contest for FDI. They enable governments a fast track approach to test and introduce regulatory reform and facilitate ease of doing business within zones that would otherwise require a much longer and potentially arduous reform journey across the “main economy”. They also signal the country’s seriousness to being open to business and attracting FDI.
SEZs help stimulate economic development, create jobs, boost and diversify exports, and expedite the industrialization process of an economy at costs which are perceived to be low by most governments. Such costs include, cost of land, foregone revenues through the cost of incentives, and any upfront infrastructure investments to stimulate interest in the SEZ. The project funding can be staged and sourced through private sector partnership (PSP) models as the tenant interest and the investment security for the partners grow over time.
In this context, this paper recaps the evolution of SEZs in the region, specifically looking at propositions to date in efforts to stimulate economic development. Furthermore, this paper provides an outlook on a set of strategic imperatives for the success of SEZs moving forward. source pwc.com
