Differentiating the Value Proposition

At a Glance
  • An SEZ’s value proposition should target a clearly defined group of investors, and differentiate the SEZ from other investment locations within and outside the country.
  • Differentiating factors might include the location and physical infrastructure of an SEZ, the nature and quality of services offered, economic linkages, and access to markets and/or inputs, all of which can be strengthened through targeted incentives.
  • To best promote economic development, an SEZ’s final offerings should align with key economic policy objectives.

Case Studies

Key Resources

Topic Briefing

Launching an SEZ is a significant undertaking. It requires substantial investments, active participation, and support from the private and public sectors. Various incentives—including tax breaks, inexpensive land, deep discounts on water and electricity, and other subsidies—may be offered to encourage companies to locate in an SEZ. These investments can end up costing more than the development generates in positive returns for the country, so it is crucial to build a strong business case.

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An SEZ should have a clear value proposition for a target group of investors, defined based on characteristics such as types of activities, sectors, geographic location, or size of firms. The value proposition should differentiate the SEZ from other investment locations within and outside the country, and the main investment offering should rely on the sources of comparative advantage in the zone. Differentiating factors could include the location, physical characteristics, nature or quality of services offered, economic linkages (including with other participating firms), access to markets, or access to inputs—which all can be strengthened through targeted incentives. Evaluating this proposition requires extensive interaction with potential investors, in order to identify and evaluate the zone’s competitors.

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. By contrast, Honduras opened its zone program to private investment at the same time that a preferential trade agreement with the United States was helping to stimulate offshoring (and while many of its competitors in Central America faced conflict situations).

SEZs should not seek to attract investment at all costs. Ultimately, SEZs are policy tools to promote economic development—therefore, their final offerings should be aligned with policy goals. The long-term success of an SEZ depends on the intersection between its attractiveness to investors and its social and economic impact.