Types of SEZs

At a Glance 

  • Policy makers looking to set up an SEZ have several types to choose from. These should be matched against context-specific circumstances and objectives.

  • Export processing zones are best suited to boosting manufacturing and related activities, with a focus on exports. Free trade zones facilitate trade, while free (or single) enterprise zones provide advantages to an individual enterprise. Freeports are usually the biggest in size and include a broad set of activities.

  • Options particularly suited to extractive industries—with a focus on enhancing local content—include supplier parks, offshore oil and gas servicing hubs, value-added logistics, and special access to mineral inputs.

Key Resources

Topic Briefing

There are several different types of SEZs. Each has a different design and is best suited to meeting different requirements. Policy makers considering whether SEZs will further extractive industries’ integration with the local economy have a variety of factors to consider, including which design best suits the circumstances:[1]

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  • Export processing zones (EPZs) are industrial estates that offer special incentives and facilities for manufacturing and related activities, with a focus on exports. These zones were very popular from the 1960s to the 1990s, and their success was often based on cheap labor, trade preferences that predate the World Trade Organization, and the dominance of Western consumer markets. As these conditions have changed, creating successful EPZs is significantly more difficult than it used to be. One example of where EPZs might be suitable is at the value-adding stage of the minerals value chain.
  • Free trade zones (also called commercial free zones) are mostly used as trade development instruments. They are generally fenced-in, duty-free areas that focus on trade facilitation and logistics services, not necessarily manufacturing as with EPZs.
    They, therefore, rely on being in or next to a port of entry. The zones tend to be small, except when they have reached regional prominence (e.g., the Colon Free Zone in Central America, Jebel Ali Free Zone in the Middle East, or Singapore in Southeast Asia). These could relate to either exploration or operations.
  • Free (or single) enterprise zones provide incentives to individual enterprises; factories do not have to locate to a designated zone to receive incentives and privileges. Examples of countries relying exclusively on a single-factory scheme include Mauritius, Madagascar, Mexico, and Fiji. Other countries—including Costa Rica, the United States, and Sri Lanka—allow both industrial estate-style zones and single factory designations. Many extractive industry development phases and operational projects could be considered de facto single enterprise SEZs due to the differential tax and regulatory treatment they receive under their permits or conventions
  • Wide-area SEZs and freeports typically encompass much larger areas and a wider set of activities (that can include tourism and retail sales, and accommodation). These SEZs also tend to provide a much broader set of incentives and benefits. Freeports have gained prominence in China. In their most developed form, these zones function as autonomous entities, managed by a dedicated government that also oversees the cities, ports, airports, and the population living within them.

Several types of SEZs are suitable for the extractive industry, including for the manufacturing of processed minerals for export (e.g., turning precious metals into jewelry or automotive components, diamond cutting) gas-to-power zones, supplier parks (which are not necessarily export-oriented; for example, these could be offshore oil and gas servicing hubs, which allow rigs to stay outside the domestic customs area during repairs), and consolidated logistics zones at ports to serve multiple extractives companies in a region (although this supports efficient imports rather than focusing on local content development).

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[1] Thomas Farole, Claude Baissac, and Jean-Paul Gauthier, “Special Economic Zones: A Guidance Framework for Policymaking: Draft,” World Bank, Washington, DC, June 2013.