Differentiating The Value Proposition

At a Glance
  • Because it is possible for the various incentives offered to companies to locate in an SEZ to end up costing more than the development generates in positive returns for the country, it is crucial for those involved to build a strong business case for the SEZ.
  • SEZs should have a clear value proposition for a target group of investors, and this should differentiate the SEZ from other investment locations within and outside the country.
  • Differentiating factors could include the location, physical characteristics of the SEZ, nature or quality of services offered, economic linkages, and access to markets and/or inputs, all of which can be strengthened through targeted incentives. 
  • SEZs are a policy tool to promote economic development and therefore the final offering of the SEZ should be tailored to the original goal(s) of the SEZ programme.

Getting an SEZ off the ground is a significant undertaking. It requires active participation and support of private and public sector and involves substantial investments. It is possible for the various incentives offered to companies to locate in an SEZ – including tax breaks, inexpensive land, deep discounts on water and electricity, and other subsidies – to end up costing more than the development generates in positive returns for the country. That is why it is crucial for those involved to build a strong business case for the SEZ.

SEZ should have a clear value proposition for a target group of investors (types of activities, sectors, geographies, size of firms, etc.). This should differentiate the SEZ from other investment locations within and outside the country. The main investment offering should rely on the sources of comparative advantage in the zone. Differentiating factors could include the location, physical characteristics of the SEZ, nature or quality of services offered, economic linkages (including other tenants), access to markets, or access to inputs. These can be strengthened through targeted incentives. Evaluating this proposition requires detailed interaction with potential investors, to and what other specific locations they are comparing to the SEZ. The timing of the SEZ can also impact its value proposition. For example, much of the early investment in Bangladesh’s EPZs came from investors escaping the civil war in Sri Lanka. Meanwhile, Honduras opened its zone program to private investment just as a preferential trade agreement with the United States helped stimulate offshoring (also at the time when many of its competitors in Central America faced conflict situations).

A clear value proposition to investors is critical for the success of an SEZ. However, SEZs should not seek to attract investment at all costs. Ultimately, SEZs are a policy tool to promote economic development and therefore the final offering of the SEZ should be tailored to the original goal(s) of the SEZ programme. The long-term success of an SEZ depends on the intersection between the attractiveness to invest and the social and economic impact of these investments.

Key Resources

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