Selecting the Best Location

SEZs tend to perform better if the location has some existing industry and if agglomeration offers access to trade infrastructure (e.g., by being near a port) or has a natural competitive advantage (e.g., for the downstream processing of minerals or onshore processing of offshore oil). However, being close to a mine or oil site is only an advantage if (i) the unprocessed product costs substantially more to transport than the processed product, (ii) transport costs contribute significantly to the overall cost structure, or (iii) the material can be accessed in a form (e.g., a specialized salt or solution) that improves the efficiency of the production process. Without this natural advantage, downstream production will be determined by the usual competitive drivers—such as the costs of labor, capital, and utilities. Utility costs are especially important to consider, because electricity is often a large component of initial processing.

Ultimately, the location needs to be chosen based on the quantity, quality, and price of the critical factors of production: land, labor, utilities, business services, and international connectivity.^[2] Environmental impacts also need to be taken into account. These factors should contribute to the competitive advantage of the SEZ and enhance its offerings to investors. The infrastructure available beyond the SEZ must also be considered; this helps to ensure linkages with the local economy, and makes the location more attractive to investors. Nigeria’s establishment of a flagship export processing zone in the city of Calabar in the Cross River State is an example of a poor location choice. While this 1990s program emphasized manufacturing for export, Calabar was neither a major manufacturing nor an important logistics area for the country. The zone failed to develop, and the port—and the zone—remain insignificant.