Design and Implementation

At a Glance
  • Successful SEZs have a clear, differentiating value proposition based on sustainable sources of comparative advantage and incentives. This differentiation needs to consider competitor locations targeting similar investor markets.
  • Different value propositions may be relevant to different stages of extractive industry operations – the types of companies involved in exploration vs. operations can be different, and their needs are different. 
  • A detailed technical and financial feasibility analysis should be used to determine the design, associated financial costs, scenarios on revenue, and weigh these up against the perceived socio-economic benefits. 
  • The development of zones is usually done in phases to retain flexibility and to test the market before large scale investments are made.

Once the strategic choices around an SEZ have been made, there is still a lot of work to be done around the design and implementation of the SEZ to ensure its a success. 

Successful SEZs have a clear, differentiating value proposition based on sustainable sources of comparative advantage as well as some incentives. This differentiation needs to consider competitor locations targeting similar investor markets i.e. why an investor would choose that SEZ versus other locations. Differentiating factors could include the location, physical characteristics of the SEZ, nature or quality of services offered, economic linkages, and specific investor targets in terms of sub-sectors, geographies or types of companies. Different value propositions may be relevant to different stages of extractive industry operations – the types of companies involved in exploration vs. operations can be different, and their needs are different.  E.g. exploration companies may have a shorter time horizon but could value certain turnkey services when they are new in a market. 

A detailed technical and financial feasibility should be used to determine the design, associated financial costs, scenarios on revenue, and weigh these up against the socio-economic benefits.  Realistic assessments of market size, potential share, and take-up rates are needed. Long-term budgetary commitments may be needed while the SEZ builds up a base of investors or tenants.  This should be mapped against the initial goals of the SEZs.  Site-specific feasibility assessment is also required, including environmental, infrastructure development, transport integration and traffic impact, and security.

Determining the size of the specific SEZ is critical. The development of zones is usually done in phases to retain flexibility and to test the market before large scale investments are made. Depending on ownership and management decisions, private sector partners need to be found, and a clear role and obligations need to be agreed in the contract. Although it has been argued that extractives FDI could be considered de facto SEZs given that investment agreements sometimes allow them to operate under a different tax and regulatory regime, designing a physical SEZ around this might not be effective.

The implementation approach of the SEZ is also critical to success. Many SEZs failed to apply their legal frameworks, particularly in terms of administration, operation, monitoring, and enforcement. In addition, many have not succeeded in creating the necessary institutional cooperation systems, including intergovernmental, regulators, and utilities.  The speed of decision-making around implementation needs to be aligned with investor decision-making timeframes.

 

Key Resources