Problems SEZs can Help Solve

At a Glance

  • SEZs cannot contribute to all national economic objectives at once. They are best deployed for narrow and clearly defined purposes.

  • Depending on the specific context, SEZs can help solve problems like a lack of infrastructure, weak integration with international markets, low levels of foreign direct investment, pent-up local demand, and excessive red tape.

  • Clear objectives help to guide the design and implementation of SEZs, while well-defined targets and metrics help assess—and adjust—SEZ programs once they’re underway.

Case Studies

Key Resources

Topic Briefing

Depending on the specific context, SEZs can help economies to resolve a specific set of problems, including lack of access to land or to suitable infrastructure, weak integration with international markets, low levels of employment, low levels of foreign direct investment, pent-up local demand, and a high administrative burden. SEZs are most likely to be appropriate where many of these constraints are present in an economy.

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While SEZs work well in addressing multiple economic constraints at once, they cannot contribute to all national objectives. Therefore, governments should take a disciplined approach by deploying zones for narrow, clearly defined purposes. Clear objectives help to guide the preliminary decision-making and design process, while well-defined targets and metrics help in monitoring and evaluation once zones are underway.

The Bangladesh SEZ program addressed three major constraints to industrial development: land titling issues (the SEZ provided land and factory shells), bureaucratic obstacles (the Bangladesh Export Processing Zone Authority improved the bureaucratic environment for obtaining licenses and approvals), and limited access to electricity and gas (power was a major problem and most companies had relied on their own generators). The SEZ infrastructure and support offerings were important; however, the primary drivers for the zone’s success were wages, market size, and market access.[1] The SEZ employed over 200,000 people in 2009, and accounted for a substantial share of national exports and investment.

In another example, the Royal Commission for Jubail and Yanbu cities in Saudi Arabia was established in 1975 to develop the Saudi manufacturing sector based on advantages in the petrochemical sector. The Royal Commission specified the cities’ strategic focus and goals at an early stage: to leverage the Kingdom's natural resources (especially oil and gas) into the higher-value petrochemical sector and related sectors that could employ skilled Saudi labor.[2]

View footnotes

[1] Thomas Farole and Gokhan Akinci, Special Economic Zones: Progress, Emerging Challenges, and Future Directions (Washington, DC: World Bank, 2011).

[2] Kurt Dassel and Kim Eckermann, Economic Security and Competitiveness: Using Special Economic Zones to Drive Job Creation in MENA, (Deloitte, 2012)