Making Strategic Choices

At a Glance
  • There are multiple strategic choices governments need to make to ensure SEZs are appropriately suited to meet needs and opportunities, some of which need to be made in the early stages and drafted into the policy, legal, and regulatory frameworks governing SEZs.
  • There are many types of SEZs to choose from, each with its own goals, design, and requirements (although in practice there are often overlaps). SEZ types include free trade zones, export processing zones, enterprise zones, freeports, and single factory free trade zones.
  • With respect to extractive industry local content, SEZ types could include supplier parks, offshore oil and gas servicing hubs, gas to power, value added logistics, and beneficiation/differentiated access to mineral inputs.
  • Policymakers also need to decide on the level of participation of government and the private sector in the management and ownership of SEZs. Choices include government entities owning and operating the SEZ, public-private partnerships, or full private sector ownership of management and operation. Critical are the objectives, capacities, and incentive structures of those who run the program.
  • The geographic location of the SEZ needs to be chosen based on the quantity, quality, and price of critical factors of production: land, labor, utilities, business services, and international connectivity.

If policymakers in a country have decided that an SEZ is the appropriate instrument, there are multiple strategic choices they need to make to ensure the SEZ is suited to needs and opportunities. Some of these decisions need to be made at an early stage and be drafted into the policy, legal, and regulatory frameworks governing SEZs.

There are many types of SEZs to choose from. Overall, these include free trade zones (also known as commercial free zones), export processing zones, enterprise zones, freeports, and single factory free trade zones.[1] Each zone has different goals, design, and requirements (although in practice there are often overlaps). In the case of extractive industry local content, the types of SEZs could include: supplier parks; offshore oil and gas servicing hubs; gas to power; value added logistics; and beneficiation/differentiated access to mineral inputs.

Policymakers also need to decide on the level of participation of government and the private sector in the management and ownership of SEZs. Choices include government entities owning and operating the SEZ (as is the case in successful SEZs in China and Mauritius), public-private partnerships (often with government as owners but managed on contract by private parties), or full private sector ownership of management and operation (the turnaround of performance of Latin American SEZs in the 1990s is partly attributed to the greater role given to the private sector). Ultimately, what is critical is the objective, capacity, and incentive structure of those who run the program.[2] Care needs to be taken to understand the extractive industry development pipeline and forecast lifespans when looking at the operating model of an extractive industry-focused SEZ, as this timeline may affect the risk profile for SEZ operators. 

The most appropriate location needs to be chosen. A good location is critical in determining the effectiveness and impact of a zone. Evidence suggests that zones located away from industry or markets – e.g. used for spatial development – tend to perform poorly. The exception is when these zones are based around a specific natural comparative advantage, as may be the case in downstream processing of minerals or on-shore activities related to exploration and production of off-shore oil and gas. Ultimately, the location needs to be chosen based on the quantity, quality, and price of critical factors of production: land, labor, utilities, business services, and international connectivity.[3] It may be challenging to locate extensive supplier parks close to mineral or oil and gas extraction sites, the locational factors for extraction vs. suppliers may be very different, and the life of projects in some cases may be too short for this to be viable in the longer term.

Finally, the instruments and tools available to SEZs need to be determined. This often includes tax incentives – which need to be budgeted for – as well as to support increased trade (e.g. custom area) or improve the business environment (e.g. red tape reduction). Each instrument is likely to require several processes, many of which can have a long lead time. 

View footnotes

[1] Gokhan Akinci and James Crittle. Special economic zones: performance, lessons learned, and implication for zone development, (Washington, DC: World Bank, 2008)

[2] Akinci and Crittle . Special economic zones.

[3]  Thomas Farole and Claude Baissac  and Jean-Paul Gauthier. Special Economic Zones: A Guidance Framework for Policymaking draft (June, 2013)

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