During our discussions at a trade facilitation and investment meeting organised by an industry chamber recently, we had good conversations on the subject with a few colleagues. Based on my experience, analysis and interactions with the leadership of several special economic, free zones and industrial parks over the years, am sharing my perspective for further conversation:
By Subhasis Ghosh, (Managing Partner, Founder, Apex Group)
What are SEZs, EPZs, Free Zones?
Wikipedia defines these as an area, where the business and trade laws are different from the rest of the country. While countries define special economic zones formally in their legislations, these zones essentially have geographically separated-fenced area and customs, tax and other benefits for units located in the area, single management or administration, streamlined procedures etc.
Who sets these up and why?
Special Economic Zones or Export Processing Zones and other such areas are set up by governments to increase trade, investments and create jobs etc. Then developers, co-developers, unit holders and other stakeholders contribute to their success.
Whereas ports are gateways to/ from the hinterland and, focus on enabling cargo and passengers to move in and out as efficiently as possible, these zones are focussed on cargo generation and aggregation-disaggregation. Hence, the approach towards their development is similar and yet complimentary.
While there are several models including Free Trade & Warehousing Zones (FTWZs), Export Processing Zones ( EPZs), Free Port & Special Economic Zone ( SEZ) and Coastal Economic Zones ( CEZs), for better understanding one could group these together as
· The traditional model, focusing on manufacturing and storage largely for export eg FTWZs, EPZ etc
· The relatively recent and larger zones, that include manufacturing, logistics , commercial and residential activities eg SEZs, CEZs etc
The above groups are nonexclusive and FTWZs could be and, often are part of SEZs.
Industrial parks focus on manufacturing, may have incentives for investors and may or, may not be part of SEZs, which focus on exports and imports.
Some learnings from China- Continued growth, moving inland…
From my visits to several Industrial Parks and SEZs including Shuzou Industrial Park-set up in partnership with the government of Singapore, Lingang Industrial Park near Shanghai, Yangshan and Shanghai ports and Shenzhen SEZ , including one of its 6 FTWZs-Futian Free Trade Zone, the take away(s) include active government support; experimenting different models; ensuring competition between zones and gradually upgrading technology and providing autonomy etc.
With China’s investment led growth policies, including in SEZs, China itself significantly benefitted from the success of special economic zones and industrial clusters in terms of increase in FDI, exports, job creation and their contribution to the GDP.
With China’s manufacturing moving inland, expect new zones to continue to develop, as the existing ones transition to more technology assisted manufacturing of high-tech products and, the consumption story picks up.
The India story- the best is yet to come…
While SEZs have been an important element of India’s commercial policy, failed implementation of the same is often cited as a county case study. The learning(s) include, relationship with the domestic trading area ( DTAs) for job work and sales, imposition of minimum alternate tax ( MAT) and Income Tax, leading to lack of investor confidence, the state (local) governments not supporting this scheme, which is perceived as a central ( federal) government initiative and non-availability of ECB and refinancing options etc.
While the government of the day had perhaps imposed (backtracked on) some of the incentives, to avoid distortions in the local economy and the possibility of money laundering through under-invoicing of imports in these zones, the result is that huge parcels of land- estimated at over 25,000 hectares and capacity created are lying unutilised ..and has perhaps contributed to non-performing assets (NPAs).
On the other hand, there are examples of successful EPZs and FTWZs in India, where there are multiple models including National Investment & Manufacturing Zones (NMIZ), Textile, Food Parks besides, SEZs, FTWZs, SEPZs etc.
With India’s consumption story remaining intact, with the thrust of the present government towards manufacturing -Make in India, Ease of Doing Business and, the ability to manage change based on feedback, expect a revival in the SEZ story.
Middle East – Similar objectives, different strategies…
Middle Eastern Countries like UAE, have leveraged SEZs to drive their core economic policies. Dubai for example has over 20 Free Zones, with over 15000 companies and 200,000 jobs have been created. The success of Jafza has been spectacular and the model of the first free zone at Jebel Ali with a port plus, SEZ plus, airport has been replicated by other countries, even outside the region.
One of the learnings from Dubai is the government’s strategy of seeking ecosystems that need facilitation to come together by clustering. We have the Dubai Media City, Dubai Finance Centre Dubai Design District, Dubai Internet City etc which create their own growth momentum and free zones promote clusters.
Abu Dhabi has established its financial and media zones and is promoting the strategically located Abu Dhabi and Al Ain Industrial Cities, under Zones Corp. While Saudi Arabia’s Kind Abdullah Economic City continues to grow, it has recently publicised plans for the mega city NEOM as a part of the vision 2030. Other GCC countries including Oman, Qatar and Bahrain continue to pursue their economic zone initiatives aggressively.
While SEZs in the middle east region continue to support diversification of the economy and promotion of non-oil revenues, strategic planning and implementation of these projects would differ based on the overall job creation objectives . Most businesses (unit holders) in SEZs seek to leverage cheap foreign labour, which could result in slower job creation for the host country. An alternate approach is to focus on attracting talent and visitors, some of whom set up competitive businesses, which then create jobs…
So, what could make these successful?
Am outlining a few key areas to facilitate conversations
· Clear purpose, vision, active government support and commitment, leading to location selection, strategic planning and cluster identification, based on local comparative advantages and linkages
· Relationship with the ecosystem – continued stakeholder management including with the government-ministries, with trade, industry, workers and academia at home and abroad and, building brand awareness and recall.
· Ability to experiment and change based on feedback of what is working, from the global value chain or trade (FTAs) perspective, in the fast changing world
Soft infrastructure, thus contributes significantly to the success of SEZs, FTWZs and Industrial Parks
We advise potential clients of Apex Group for full cycle business implementation, on the need to simultaneously and continuously work on the five areas below
· Validate and update strategy- stakeholder alignment, demand assessment, planning and cluster definition
· Customer acquisition and brand building including, marketing, sales and service
· Attracting the right talent as future competitiveness is about talent, training and engagement
· Operating efficiently-integrating USPs, building SOPs, leveraging technology
· Preparing for future with reviews, reporting and M&A, feeding into the strategy
What is changing?
· Global trade continues to evolve in a way that may not support the traditional export oriented, free zone model. Hence building economic zones for export only may not the answer, these need to have local linkages in manufacturing as well as trade, based on comparative advantages of the region.
· Government commitment and willingness to learn and experiment with new Trade Facilitation Agreements and the ability to change strategies, based on evolving country comparative advantages, is becoming important. We can’t set up a zone , allocate land and consign it to govern itself for the next decades. There is however a need to strike a balance between oversight and autonomy.
· Building only clean-tech industries (Hi-tech, Edu-tech. Med-tech) may not work…some ones got meet the non-clean-tech demand as well.
· Soft infrastructure and ICT is as important to leverage the hard infrastructure
With the 4 th industrial revolution changing us…, more businesses would perhaps like to operate in such zones with liberalised regulations, incentives , quality infrastructure including ICT, leveraging the local comparative advantages.
I see a bright future for economic zones and industrial parks as this is where infrastructure development, consumption and trade are coming together and, new cities-perhaps smart cities are emerging and these would contribute to lift economies of countries.
What do you think are the other success factors for the success of Free Zones ?
South African’s Trade and Industry Minister, Rob Davies highlighted the job-creating potential of his department’s incentive programme, and the importance of special economic zones, when he addressed MPs on Tuesday.
He said the R18.8bn allocation in the budget over the next three years for the Department of Trade and Industry’s incentive programmes would enable the government to continue to provide financial support to the private sector.
The focus would be on labour-intensive sectors that could create jobs for youth.
Davies briefed Parliament’s trade and industry portfolio committee on the implications of President Cyril Ramaphosa’s state of the nation address (Sona) and the budget for the mandate of his department.
|South African Minister of Trade & Industry, Rob Davies (Photo: Business day)|
In providing an overview of the incentive programme, Davies said that on average the department processed four applications and five claims a day.
In 2016-17 the department spent R12.8bn in grants, the tax allowance scheme and loans — which was expected to generate R39.4bn in projected investment, R7.1bn in export revenue, and to create 23,351 new jobs and retain 38,192 existing jobs.
Updating MPs on the progress of the black industrialist programme, Davies said to date 79 projects had been approved, with total grants disbursed by the department amounting to R1.9bn. This had facilitated R6.9bn in investments.
The main economic sectors benefiting from the black industrialist programme grant were plastics and pharmaceuticals (R567m); agro-processing (R316m); metals (R279m); the green sector (R149m); and manufacturing and logistics (R116m).
With regard to the automotive investment scheme, 88 projects were approved in 2016-17 to receive grants totalling R3.6bn, related to a projected investment value of R12.4bn.
A total investment allowance of R3.9bn had been approved for 25 projects in 2016-17 under the Section 12i tax allowance incentive scheme with an associated projected investment of R14.3bn.
Davies said the department’s manufacturing investment programme was achieving its objective of job creation. About R400m had been disbursed under the programme and 26,030 jobs had been supported.
Davies noted that as Ramaphosa had announced, the government would organise an investment conference in the next three months, targeting both domestic and international investors.
“The investment conference will stress the need to encourage investors from the continent to locate in SA. In addition we will encourage multinational corporations to invest their R&D (research and development) facilities in SA as we seek to make SA a knowledge and innovation centre,” Davies said.
Davies said the R4.9bn allocated for industrial infrastructure projects over the next three years would be used in special economic zones (SEZs) and industrial hubs in order to expand economic opportunities in underdeveloped areas.
“The SEZ programme is a critical instrument for accelerating industrialisation,” he said.
“More importantly, the SEZ programme is a critical tool for attracting foreign direct investment, creating decent jobs, establishing new industrial centres as well as developing and improving infrastructure.”
There are seven designated zones, namely in Saldanha Bay, Dube Trade Port, Coega, East London, Richards Bay, Maluti a Phofung in the Free State, and the recently added Musina in Limpopo.
In the coming year the department will finalise two more zones for designation, namely in Atlantis in the Western Cape and Nkomazi in Mpumalanga.
Investments in SEZs benefit from a reduced corporate tax rate and the employment tax incentive.
“The ‘package’ of support measures available to investors in SEZs is becoming comparable to that offered by our global competitors,” Davies said.
“SA still has work to do to improve the efficiency of regulatory decision making but the investment offering is improving significantly.”
Highlighting some of the achievements of the special economic zones, the minister noted that Chinese company Yangtze Optics Cable and its black economic empowerment partner, Mustek, was investing R150m in a modern optical fibre cable manufacturing plant at Dube Trade Port.
Saldahna Bay had a pipeline of 34 investments worth R34bn and OR Tambo had attracted R260m in new investment covering horticulture and metal refining.
Culled from Business Day
|Chief Executive Officer GFZA, Mr Michael Baafi (Photo: Business Ghana)|
The Ghana Free Zones Authority (GFZA) has granted licenses to 16 new companies with a combined investment value of $183 million to operate under the free zones programme.
They include Gold Coast Refinery, Juaben Oil Mills, Regency Salt Limited, Ramec Limited, Nurevas Food Ghana Limited and Karma Distillery Limited.
Others are Enviroplast Company Limited, Atlantic Life Services, Bassi International Limited and Melan Print and Packaging Limited.
The Chief Executive Officer (CEO) of the GFZA, Mr Micheal Okyere Baafi, told the Daily Graphic in an interview fortnight that the licensing of the 16 companies was a novelty and underscored the government’s commitment to industrialise the economy.
The companies, he said, would be expected to venture into value added businesses and adhere to the law binding their operations under the programme to sell only 30 per cent of their manufactured products locally and export the remaining 70 per cent.
Mr Okyere-Baafi said that was to boost the local manufacturing industry and increase the country’s gains from the export market.
“We have just added 16 companies to the programme and that is unprecedented. We hope to achieve a milestone within a year,” he said.
Mr Baafi indicated that the 2018 strategy of the authority was to change the face of the GFZA by creating autonomous offices, enhancing the quality of service delivery and introducing speed with regard to licensing application processes, exemption of application processes, visa application and renewal processes, as well as vehicle registration processes.
He said the GFZA would set up a new unit to focus on the oil sector by providing the needed expertise to companies in that sector to operate efficiently.
“A free zone company can be located either in any of the export processing zones (EPZ) or anywhere in the country upon the approval of the GFZA.
“In essence, the whole country is accessible to potential investors who have the opportunity to use the free zones as focal points to produce goods and services for foreign markets.
“The programme is designed to promote the processing and manufacturing of goods through the establishment of EPZs, and encourage the development of commercial and service activities at sea and airport areas.
Companies operating under the programme are entitled to both monetary and non-monetary incentives’’, he said.
He further said the monetary incentives offered included 100 per cent exemption from the payment of direct and indirect duties and levies on all imports for production and exports from free zones.
He said it also included 100 per cent exemption from the payment of income tax on profits for 10 years which would not exceed eight per cent thereafter.
According to him, the incentive also includes total exemption from the payment of withholding taxes from dividends arising out of free zone investment.
“With a focus of maximising the country’s benefit from the programme, some priority sectors have been identified by the GFZA for investments based on the comparative advantages of the country.
“The priority sectors include agro food processing, cotton processing, textile manufacturing, ethnic beauty products, sea food processing and jewellery/handicraft production.
“The rest are light industry/assembling plant, plastic products manufacturing, metal fabrication, ceramic tile manufacturing, and information and communication technology.
Culled from Business Ghana
Culled from The Independent (Kampala)
Ghana government is to establish free zone enclaves in all regions in the country as part of plans to industrialise the nation’s economy.
In addtion, a major infrastructural facelift project will soon begin at the free zones enclave in Tema.
It will include the re-building of broken-down walls, construction of police posts and new roads to enhance the operations of businesses within the enclave.
The deputy minister of Trade and Industry, Mr Carlos Ahenkorah disclosed this at an interactive forum with Chief Executive Officers (CEOs) of licensed free zone enterprises in the eastern, Greater Accra and Volta regions in the city of Accra, recently.
|Cross section of participants at the interactive forum|
Organised by the Ghana Free Zones Authority (GFZA), the forum was dubbed: “Revolving challenges for business growth”.
Mr Ahenkorah said as part of the one-region, one-free zone project, arrangement had already been made with the chiefs in the regions for a litigation-free land to be made available for the implementation of the programme.
The Minister indicated that government was committed to creating an environment where Free Zone enterprises could thrive, adding that challenges that derailed the efforts of businesses would be addressed.
“That is why we are beginning the facelift initiatives at the Tema enclave where there will be good roads and formidable security posts to ensure that operations of Free Zone enterprises are not halted, he stated.
Mr Ahenkorah noted that more interventions would be rolled out to ensure that free zone enterprises received the needed support to expand their operations.
The Executive Secretary of Ghana Free Zone Authority (GFZA), Mr Michael Okyere Baafi, commended Free Zone enterprises for their various roles in the country’s industrialization agenda.
However, he raised issues with the way some of the enterprises submitted their mandatory quarterly documentation, saying a number of them used false information to deceive the board.
Mr Baafi said a fine of $ 55,000 would be slapped on any free zone enterprise that “attempts to use false information to deceive the Board”.
The Executive Secretary of African Free Zones Association, Chris Ndibe, who was at the event commended the effort of GFZA in organizing the stakeholders meeting as this will reveal the problem areas in the operation of free zones in the country. “To get the best of a meeting of this nature, it should be made more than once”, he said