Ownership and Operating Models

At a Glance
  • Public ownership and management give full control to the government. This means greater oversight of the type of investment attracted and operations undertaken.
  • Public ownership with private management/operation allows government to keep the land and the assets, but allows a specialist firm to attract investment and run the day-to-day operations.
  • Private ownership and management give control to private firms, with the role of government confined to managing incentives (e.g. taxes or customs).
  • What is critical are the objectives, capacities, and incentive structures offered by and available to those who run the program.

There are three broad established approaches to operating SEZs, each with strength and weaknesses:

  1. Public ownership and management give full control to the government. This means greater oversight of the type of investment attracted and firm operations. Chinese SEZs are the success stories for this model. However, it also carries significant risks, particularly for government budgets. Excluding the private sector may result in political processes determining the SEZ location, overly optimistic forecasts leading to the wrong size, or zones with weak operational capacity and ability to attract investments.
  2. Public ownership with private management/operation allows government to keep the land and the assets but allows a specialist firm to attract investment and run the day-to-day operations. It can take many forms depending on how infrastructure is funded, e.g. concessions, Build-Operate-Transfer, and Public-Private-Partnerships. This approach maintains the oversight role of government, while incentivizing a private firm to drive the success of the SEZs. However, SEZ performance still depends on the implementation of this agreement. The contract setting out the roles, obligations, and costs is critical, as is the monitoring and oversight of the managing firm. In countries or regions with low capacity to negotiate and enforce these service contracts, there is still a risk that the SEZ project is poorly implemented or targeted.
  3. Private ownership and management give control to private firms, with government’s role confined to managing some of the incentives (e.g. tax or customs). A 2007 global study found that 62% (of 2,301) of zones were privately owned, developed, and operated (compared to less than 25% in the 1980s).[1] This was driven by the perception that private zones are more successful than most public zones, as well as a general lack of government funding for zone development. In the case of Honduras, stagnant government-run zones were transformed when the law was changed to allow for private developments of zones. However, government gives up oversight and loses control in the type of investment attracted, which may lead to weaker benefits to the local economy.

A 2011 review of SEZs did not find any clear pattern of private outperformance of public SEZs, or any other model, but noted that the private sector can be much more dynamic in implementing zones and, regardless, is an important source of expertise and risk management.[2] Ultimately, what is critical is the objectives, capacity, and incentive structure of those who run the program.

Recently, a new form of ownership and management has emerged. In 2006, the Chinese government announced that it would establish economic and trade zones in foreign countries. Subsequently, zones have been established in Zambia (focusing on copper and cobalt processing), Egypt, Nigeria, Mauritius, Ethiopia, and Algeria. However, there are not yet any available studies on the impact of these zones.

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] Thomas, Farole, Special Economic Zones in Africa: Comparing Performance and Learning from Global Experience, (Washington, DC: World Bank, 2011)

Key Resources