SEZs for South Africa by Claude Baissac

Claude Baissac

SEZs for South Africa Final Claude Baissac February 2010 A report commissioned by the Center for Development and Enterprise (www.cde.org.za) Property of Claude Baissac

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Table of Contents Executive Summary .................................................................................................................... - 5 Introduction ............................................................................................................................. - 5 Special economic zones .............................................................................................................. - 5 Packaged competitiveness .................................................................................................. - 5 Maximising benefits, controlling costs ............................................................................... - 7 SEZs and structural economic reform................................................................................. - 7 South Africa’s Industrial Development Zones programme ........................................................ - 8 Performance of the IDZ programme ................................................................................... - 9 An uncertain policy context .............................................................................................. - 10 How to realign the IDZ programme: a template ............................................................... - 10 Introduction ............................................................................................................................... - 13 Part A: special economic zones ................................................................................................ - 15 Terminologies and definitions .............................................................................................. - 15 Global economic footprint .................................................................................................... - 20 Constituents of special economic zones ............................................................................... - 23 Regime .............................................................................................................................. - 24 Administration .................................................................................................................. - 25 Infrastructure ..................................................................................................................... - 26 Strategic context – policy rationales ..................................................................................... - 26 The SEZ paradox: growth against the grain ......................................................................... - 28 A reality changed? The birth of the ‘new model’ SEZ ......................................................... - 32 From enclave to integrative economics ................................................................................ - 34 The division of labour in SEZ public-private partnerships ................................................... - 37 SEZs in Africa....................................................................................................................... - 39 Part B: Case studies .................................................................................................................. - 43 The Mauritius Export Processing Zone: catalyst in economic restructuring ........................ - 43 Origins, context and early performance ............................................................................ - 43 Economic crisis and reorientation ..................................................................................... - 44 Adaptation and resiliency ................................................................................................. - 45 From export-led growth to the open economy.................................................................. - 47 The role of the state........................................................................................................... - 49 Malaysia: EPZs, Export-oriented Growth and Economic Redistribution............................. - 50 Policy context.................................................................................................................... - 50 Initial export processing zones drive: dual-track strategy ................................................ - 51 The 1980s heavy industry drive ........................................................................................ - 53 The second export-oriented drive ..................................................................................... - 53 Economic Footprint .......................................................................................................... - 54 -

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Synthesis: the role of SEZs in Malaysia’s economy restructuring ................................... - 55 The Aqaba Special Economic Zone: an approach to PPP .................................................... - 55 Economic and governance rationale for the Aqaba Special Economic Zone ................... - 55 Governance framework and development principles ....................................................... - 56 Investment record.............................................................................................................. - 57 Industrial estates in the ASEZ – the case of the Aqaba International Industrial Estate.... - 57 Part C: South Africa’s Industrial Development Zones programme .......................................... - 61 Programme overview ............................................................................................................ - 61 IDZs defined ..................................................................................................................... - 62 Key regulatory and legislative aspects .............................................................................. - 63 Customs controlled area (CCA) ........................................................................................ - 63 Investment and operating incentives ................................................................................. - 64 Programme funding and investment ................................................................................. - 66 Case study: Coega IDZ ......................................................................................................... - 66 Configuration and investment profile ............................................................................... - 66 Investment made vs. investment committed ..................................................................... - 67 Deepwater port .................................................................................................................. - 68 Future projects .................................................................................................................. - 68 Programme effectiveness and performance – the evidence so far ........................................ - 69 Programme design, efficacy and regional choices ............................................................ - 69 Lack of buy-in ................................................................................................................... - 71 Inadequate incentives ........................................................................................................ - 71 Governance ....................................................................................................................... - 72 Immense economic cost and unclear long term impact .................................................... - 73 Conclusions ............................................................................................................................... - 75 The new economics of SEZs................................................................................................. - 76 Packaged competitiveness ................................................................................................ - 76 Maximising benefits, controlling costs ............................................................................. - 77 SEZs and structural economic reform............................................................................... - 79 South Africa’s IDZ programme – implications from the SEZ experience ........................... - 80 Performance of the IDZ programme ................................................................................. - 80 An uncertain policy context .............................................................................................. - 82 How to realign the IDZ programme: a template ............................................................... - 82 Figure 1: South Africa’s macroeconomic performance since 1983.......................................... - 13 Figure 2: SEZ population growth between 1975 and 2006 ...................................................... - 21 Figure 3: Regional shares of SEZs amongst developing countries circa 2008 ......................... - 40 -

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Table 1: Special economic zones key demographic figures ..................................................... - 21 Table 2: Regional distribution of SEZs in developing countries circa 2008 ............................ - 39 Table 3: Private sector key data for Coega, East London and Richards Bay ........................... - 73 Table 4: Summary, including infrastructure investments and construction jobs ...................... - 74 Table 5: Analysis of key ratios for Coega, East London and Richards Bay ............................. - 74 Table 6: Estimation of total employment creation up to 2012.................................................. - 75 -

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Executive Summary Introduction Despite respectable growth performance since 1993, which has averaged 3.4 percent and peaked at 5.4 percent in 2006, South Africa has not been able to effectively address its labour surplus problem, effect greater exports, attract more foreign direct investment, and steadily anchor itself in the club of dynamic emerging markets.

That balance needs to lead to a path where the country can experience a secular, sustained growth of over 4-5 percent per annum on a continuous basis in order to see standards of living increase, inequality drop, and unemployment decrease.

Many successful emerging markets have made use of special economic zones to redress critical growth constraints.

The paper provides a perspective on the role that this instrument could play in South Africa. As such, it is intended to support the initiation of a debate on the issue of the performance of the country as a destination for FDI, non-traditional manufacturing activities and exports. It is also intended to serve as a foundation for the much needed reappraisal of the countryâ&#x20AC;&#x2122;s industrial development zones programme.

Special economic zones Packaged competitiveness

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regulation and governance, SEZs have proven their capacity to generate significant economic benefits. They then represent a form of â&#x20AC;&#x2DC;packaged competitivenessâ&#x20AC;&#x2122; through the combined offering of regulation, governance and infrastructure. The competitiveness of SEZs rests in a concentrated set of assets: (i) a regulatory regime that enhances the business climate and decreases the cost of doing business; (ii) an efficient governance structure that provides a solid development strategy and implementation, ensures effective performance of the regime, and supplies responsive zone management; and (iii) a strong infrastructure offering combining world class business/technology/industrial/commercial park(s) and transport nodes.

In the WTO era, the relevance of SEZs goes far beyond the provision of cheap labour under exploitative conditions and bilateral trade regimes of exception, as their opponents have regularly charged. Many studies have been devoted to that question, and shown that this hardly needs to be the case. ILO has paid much attention to them and shown that SEZs achieve best for their host economies when they provide for flexible, competitive, yet quality labour conditions. In this regard, SEZs can in fact play a positive national role in the upliftment of the labour force.

In contradiction to their many critiques, who have wished for and often predicted their demise, SEZs have gained global relevance through their capacity to adapt to changing trade and investment patterns and rules, and to the changing geography of investment, production, consumption and growth. To the charges that they were marginally beneficial enclaves, policymakers have responded by increasing domestic participation, diversifying activities, and relaxing investment and trading rules. The shifting of the investment burden to the private sector has transformed previously costly public sector endeavours into often mutually beneficial publicprivate partnerships.

The respective responsibilities of government and the private sector have shifted to a division of labour where government provides the rules of the game (regulation), creates the condition for competitiveness (strategy, investment model, regulation, incentives, overall promotion and limited capital investment). To the private sector has shifted the responsibility for investing, developing (with various levels of commitments) and managing key SEZ infrastructure.

When these assets are properly packaged and combined with existing domestic assets such as labour, existing infrastructure, natural resources, location and access to markets, existing enterprises and capital, SEZs are expected to, and have proven capable of, playing a crucial economic role for transformation and accelerated growth.

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Maximising benefits, controlling costs

Yet, SEZs are not a panacea for economic growth and development. They are but one of the policy instruments at the disposal of government to attract investment, promote manufacturing and diversified activities, support employment creation, generate export earnings, and act as a catalyst for innovation.

In this domain, there is a direct relationship between the success of the zone and the regime established, its administration, the format for public-private partnerships, location choices and overall strategy. Equally critical is the commitment of government and key domestic institutional actors to make the SEZ regime a success. In that regard, the developmental impact of an SEZ tends to be positively correlated to crucial political and administrative factors.

The debate on costs and benefits of the past three decades has been hugely beneficial to improvements in the design, development and management of SEZs. While limited in scope because of its inability to entertain meaningful dynamic benefits, the rigorous application of empirical cost-benefit analysis has shed crucial light on the need to limit public investment to those issues that cannot be passed onto the private sector.

While incentives play a role, it is crucial that they be treated as one of the components of the overall package rather than the default, quasi-obligatory foundation so many governments assume is the foundation of competitiveness. All things being otherwise equal, incentives represent a marginal benefit to the investment decision of the vast majority of economic operators. What matters is the overall competitiveness they will derive from investing and operating in a specific environment.

SEZs and structural economic reform

The relationship between SEZs and structural economic reforms is a complex matter. Two case studies in this report (Malaysia and Mauritius) show that SEZs can be an integral component of a secular economic re-orientation from traditional, primary commodity economies to diversified, balanced and high productivity economies. The examples show the positive long-term demonstration role SEZs played while achieving short-term benefits that â&#x20AC;&#x2DC;bought timeâ&#x20AC;&#x2122; for structural reforms.

In both cases the SEZ sector allowed for the initial protection of a domestic economy insufficiently competitive, creating a path for progressive efficiency gains. In time, the two countries felt confident enough to progressively open their economies, notably after strong

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domestic enterprises were created and the economy was diversified enough to better sustain external shocks. This path has been similar to some degrees of variation with a number of other earlier emerging nations, including Taiwan and South Korea.

There are obviously the counter-examples to this scenario: the constrained zones of FIAS, the enclaves which have not acted as catalysts for the growth of a strong non-traditional manufacturing export sector, have not fostered technology transfers and the rise of a competent domestic enterprise class, and have not led to sustainable economic openness. In some of these cases, zones have been reasonable performers, attracting investment and creating employment, but remaining enclaves poorly connected to their hinterland and failing to act as catalysts for shared growth. In others, they have not been able to retain attractiveness or achieve it, and have failed altogether.

SEZs are thus a double-edged sword: 

In some cases they provide a timed buffer which allows a country to create a nontraditional, export-oriented economic sector, leaving the domestic economy relatively protected, and thus creating the space for long-term reforms. The SEZ constitutes a booster to growth, investment, employment and the creation of internationally competitive economic clusters where foreign and domestic firm interact and exchange. In time, there is sufficient politico-economic incentive for government to extend the exportoriented experience to the rest of the economy without this process to generate unbearable costs, and thus opposition from labour and domestic businesses (rent seekers).

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In other cases, they never really lead to economic openness and allow the continuation of a dual economy, with an export-oriented enclave living side by side with a protective, inefficient, domestic economy largely controlled by rent seekers. In this type of cases, the SEZ may act as a powerful disincentive to greater economic reform and opening while at the same time providing a boost to growth that somewhat compensates for the poor performance and high opportunity cost of the protected domestic sector.

The successful emerging countries that employed the SEZ/EPZ route have for the most part chosen the first route.

South Africa’s Industrial Development Zones programme South Africa’s IDZ programme reproduces some of the characteristics of SEZs, and notably export processing zones. Yet, the programme is not an SEZ programme:

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The programme does not benefit from its own trade and investment regime, but instead is subject to the country’s trade and investment regime. The Customs Controlled Area is a limited attempt at provided ‘free trade-like’ conditions, but does not appear to have achieved that meaningfully.

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It does not have a dedicated government administration with the autonomy and authority required to govern the programme with enough impact and efficacy.

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The programme does not provide a specific set of incentives that clarify the rules of the game and simplify investment and operation.

South Africa’s IDZ programme is a hybrid between normal industrial zones and SEZs. It is not clear from the available evidence that this has been entirely beneficial.

Performance of the IDZ programme

The programme seems to have suffered from a confusing regime, an inadequate governance structure, an inadequate incentive structure, and the lack of meaningful private sector participation in financing and development.

Furthermore, the choice of locating zones in relatively undeveloped areas of the country, the need to thus engage in extremely large infrastructure construction, and the choice of industrial sectors made have combined to turn the IDZ programme into an extremely costly investment.

Finally, the choice to focus the programme on capital intensive and heavy industrial activities have meant that employment creation and the ability of the programme to foster deep and active linkages between zone firms and their hinterlands is limited.

The strategic choice made by the IDZ programme is to have combined heavy, capital-intensive industrial development with regional development. This is a costly choice, economically and socially. It is evident that this choice has a significant direct and opportunity cost, notably: (i)

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direct budgetary cost; (ii) budgetary opportunity cost; and, (iii) social cost and opportunity cost, notably in terms of employment generated.

While the programme has attracted investment, and South Africa has shown itself capable of attracting competitive industries, there remains uncertainty about the country’s comparative advantage.

The overall proposition to investors appears to be of questionable relevance. The real benefits and returns of locating in IDZs are limited as there were no significant comparative cost advantages, especially with evaporation of electricity price differential. South Africa is in general at a relative disadvantage from a costing standpoint, and is not aided by legislation challenging to business. The regions selected for the IDZs are even less competitive, with access to labour, skills and relevant support services, but also suppliers, being limited.

Furthermore, attracting foreign investor is bound to be a challenge where the benefits are complicated and not necessarily on par with competing countries. For example, 10 year company tax holidays are offered elsewhere, in comparison to much shorter holidays offered in South Africa.

An uncertain policy context

Beyond the above issues, there remains uncertainty over the future policy direction of the country, and over trade, investment and industrial policy. Major debates have been taking place for quite some time, but there does not seem to be any strong consensus emerging toward a more protectionist, ‘developmental’ policy or a more open one. There is an increasingly evident division between those advocating more competition and freer trade barriers, in order to expose South African firms to increased international exposure and to help break prevalent cartel development, and others who are calling for a much stronger degree of protectionism, particularly of emerging and fragile industries. Officially, South Africa is to become a developmental state. Substantively, there is no clarity on what that means.

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its sectoral and geographic orientations must be questioned, as they seem to bring litte in terms of what the country needs to achieve socially sustainable growth. In this regard, its opportunity cost to economy is probably excessive. In relation to improving the programme’s economic relevance, and achieving the kind of static and dynamic impact seen in other emerging countries which have successfully employed SEZs, it is probably not feasible to leave the IDZ programme as it is and start a parallel SEZ programme, should there be an interest in creating a more effective export-oriented manufacturing regime to supplement the economy and support greater employment creation. This would be costly and patently unfair to existing investors. It would make more sense to consider realigning or ‘reengineering’ the IDZ programme toward greater economic efficiency and relevance.

A meaningful reengineering of the IDZ programme should be rooted on a number of foundations:

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There needs to be clarity on the country’s overall economic strategy. The current message is confused, and the current policy signals are contradictory. For the country to be economically sustainable, it must either chose economic openness or an approach closer to that of the Asian NICs. But it must chose and deliver an unambiguous strategy. The latter is costly and requires significant state capacity. Yet the evidence is that such capacity is under strain, both in formulation and implementation.

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There needs to be a clear strategy as regards the role of FDI, non-traditional manufacturing activities and exports in whichever strategy the country chooses. Whether a more open or a more ‘developmental’ approach is chosen, South Africa cannot do without significant FDI, without the active and aggressive promotion of manufacturing, and without strong exports of non-traditional products.

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Similarly, there needs to be a clear strategy in terms of the relationship between the above and redressing the unacceptably high rates of unemployment and underemployment. The country needs to consider the benefits, costs and social risk of its preference for capital intensive industries either directly funded by government or attracted at high cost.

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The impact of the IDZ programme on the above strategy and on FDI, non-traditional manufacturing activities and exports must be assessed in details, and its potential role must be adequately defined.

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A programme cost-benefit analysis should be conducted using welfare economics methodologies, and evaluating direct, indirect and opportunity costs and benefits. This analysis should serve as a baseline scenario for considering options for the reengineering of the programme, or other alternatives.

Claude Baissac

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The competitiveness of the programme’s offering versus the country’s current and future competitors must be evaluated in-depth. This requires that comparative benchmarking and best practice studies be conducted. This should include key programme components: regulation, governance, incentives, location, competitiveness, etc. In these domains, there is ample opportunity for improving the offering.

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End users, developers and key stakeholders should be thoroughly surveyed to obtain a rigorous understanding of their expectations and experiences with the IDZ programme in terms of its key components.

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Meaningful private sector participation should be enlisted in existing and future zones, in terms of investment, promotion and management. This private sector participation would seek to achieve a number of critical objectives, including: investment burden-sharing, managerial efficiency, reputational credibility. In this regard, the participation of international ports and zones operators should be considered.

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Zones should be developed in the country’s principal metropolitan areas to capitalise on existing infrastructure, economic activities and productive assets with a view to generate strong competitiveness and growth poles. These would emphasise both capital and labour intensive processes.

Claude Baissac

Introduction Until 2009 and the global economic crisis South Africa experienced sustained economic growth over the ten year period starting in 1999, with average per annum GDP growth at 4.4 percent. Peak growth was experienced in 2006, at 5.4 percent. These nine years of solid growth followed 6 years of positive, albeit irregular growth. Thus, between 1993 and 2008 South Africaâ&#x20AC;&#x2122;s economy grew continuously, with annual lowest growth being 0.5 percent in 1998. This was caused by the Asian crisis. For that 16 year period, average annual growth was 3.4 percent.

This performance owed in large part to the combination of macroeconomic orthodoxy adopted circa 1996 and progressive economic liberalisation that followed. Growth was accompanied by a convergence of key indicators toward greater macroeconomic stability. Figure 1: South Africaâ&#x20AC;&#x2122;s macroeconomic performance since 1983 25

Inflation GDP Growth

ZAR/USD Prime Rate

0 198319851987198919911993199519971999200120032005 -5

During the period, South Africa integrated the global economy through greater trade and capital exchanges. Yet, the country did not manage to redress some of its most critical requirements for long term socio-economic development. Macroeconomic orthodoxy, under the form of fiscal, budgetary and monetary rigour, did not contribute sufficiently to decreasing historical economic inequalities, redress mass unemployment and transform the economy into the productive powerhouse it has had the potential to become. Further, South Africaâ&#x20AC;&#x2122;s economic performance lagged behind that of key emerging markets in most indicators: GDP growth, FDI, domestic investment, industrial growth, exports, etc. In mining, and despite a commodity boom, the performance was comparatively lacklustre, and the economy lost precious opportunities.

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South Africa’s incapacity to absorb surplus labour, effect greater exports, attract more foreign direct investment, and steadily anchor itself in the club of dynamic emerging markets has been largely caused by structural inefficiencies and a partially misdirected microeconomic policy. The global economic crisis of 2008-2009 has also taken its toll, with the economy losing approximately 1 million jobs in 2009, half of which in the formal sector.

The current imbalance between productive investment and social welfare is not sustainable in the long run as it does not provide the basis for self-perpetuating growth. Welfare, justifiable on the basis of persistent inequalities, is no substitute for investment in the country’s productive assets, labour force included. The country needs to find a new balance in an era of tight budgetary constraints, lower global growth, and declining national competitiveness in some key industries. That balance needs to lead to a path where the country can experience a secular, sustained growth of over 4-5 percent per annum on a continuous basis in order to see standards of living increase, inequality drop, and unemployment decrease.

Many successful emerging markets have made use of special economic zones to redress critical growth constraints.

The paper seeks to provide a perspective on the role that special economic zones could play in South Africa. As such, it is intended to support the initiation of a debate on the issue of the performance of the country as a destination for FDI, non-traditional manufacturing activities and exports. It is also intended to serve as a foundation for the much needed reappraisal of the country’s industrial development zone programme.

The paper is primarily a reference piece whose purpose is to explain SEZs and illustrate aspects of their economic impact and contribution to growth and development, and secondarily an analytic one.

It begins with a substantial description of SEZs, their characteristics, global significance, costs and benefits, and the policy contexts within which they have developed and evolved. The section provides insights into the recent fundamental changes that have occurred in the configuration, policy roles and financing and operating models of SEZs.

The second section of the report provides three case studies of SEZs that are considered relevant to South Africa. The first is an extensive discussion of the Mauritius case. It emphasises the role the Mauritius Export Processing Zone played in transforming the island’s economy over a period of nearly 40 years; turning it away from the production and exports of a primary commodity (sugar) to becoming a diversified manufacturing and services economy. The second case is

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Malaysia. The emphasis is also on the transformational role of zones, but in a context of a broad policy of redistribution of economic opportunity from ethnic minorities to the majority. The third case is that of Jordan’s Aqaba Special Economic Zone. Here, the purpose of the case is to demonstrate how public-private partnerships can, in the adequate regime and governance configuration, bring significant returns to the partners and achieve developmental objectives. The third section provides a perspective on South Africa’s IDZ programme, its main objectives and characteristics, its key regulatory and governance aspects, its incentives, and its funding and investment programme. The Coega Industrial Development Zone is briefly presented. A summary analysis of the programme’s effectiveness is provided, with some quantitative analysis. The concluding section offers a summary of the benefits of SEZs in relation to static and dynamic economic benefits. It then provides an evaluation of South Africa’s IDZ programme in relation to these benefits, arguing that the programme is in need of a more thorough evaluation and a ‘reengineering’ effort. It concludes with a perspective on what this evaluation and reengineering could look like.

Part A: special economic zones Terminologies and definitions Special economic zones, and associated regimes like free trade zones, free ports, and export processing zones, have a long history. It is estimated that their origin goes back as far as Ancient Rome, with the island of Delos, in the Cyclades, being granted ‘free trade’ status by the Roman Empire. The notion evolved in the Middle Ages into the city-state of Venice, and the Hanseatic League of Germany. The growth of the colonial empires led to the emergence of trading posts and the freeport cities of Macau, Hong Kong and Singapore. These represented limited portions of a national territory or entire island, granted exception to the prevalent national rules of trade, residency, investment and activities. Their purpose was to foster trade and exchange. This regime has left a long legacy of economic success and socioeconomic advancement.

Yet, there is more to them than the limited status of commercial outposts at marches of empires. Since the 1950s, there has been a veritable revolution in the use of special economic zones, often for very varied policy objectives, and with varied results. Today’s special economic zones represent a bewildering set of policy tools. The terminology applying to SEZs and their subtypes has not reached consensus, despite many attempts at doing so. Definitions abound and vary from country to country, region to region, institution to institution, and evolve continuously as new types of zones are developed. This is often confusing, and can obscure analysis, debates, and policy choices.

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As a way of introduction, we use here the latest terminology from the World Bank’s Foreign Investment Advisory Service (FIAS). It has the benefit of formal definitions based on comprehensive surveying. However, event this terminology is not free of confusion, as will appear below. FIAS1 categorises six different types of special economic zones:

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Commercial free zones, or simply free zones (FZs): these are the oldest form of SEZs. These zones are also the most ubiquitous, notably under the bonded warehouse format found in the vast majority of seaports, and in some airports. Free zones are usually in or near major international transport nodes. They are usually under the administration of ports, directly or indirectly. They are also usually physically segregated from both the port’s main area and the outside – fences, walls, gates – because they lie outside of the country’s custom territory. Their activities are limited to trade-related processes, including warehousing, storage, and sales. Example: Colon Free Zone, in Panama, represents one of the best examples of a modern commercial free zone. Located on the Atlantic side of the canal, it occupies an area of 400 hectares. At the nexus of Central, Northern, South America and the Caribbean, linking the US eastern and western seaboard, it was opened in 1948 to capitalize on the canal traffic, and the trade opportunities it presented. The zone offered a liberal trading environment, permitting logistics and trading activities, both wholesale and retail. Its initial focus was trade with South America. Nowadays, the economic liberalization and greater regional integration of South America has turned Colon into a prominent regional multimodal logistics platform (maritime, rail, air and road) and trade centre. The zone is visited every year by over 250,000 people, hosts 2,000 enterprises, employs over 15,000 persons, and imports and exports over 10 billion dollars of commodities annually. The zones is owned by the state and operated by a semi-autonomous parastatal.2

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Export processing zones (EPZs): these made their appearance in the late 1950s-early 1960s as a way to accelerate industrialisation and industry-related international trade in peripheral countries. There is debate as to which country invented the concept, but it appeared at roughly the same time in South Korea and in Ireland. Both countries put together the basic ‘grammar’ of EPZs, which would be replicated across a vast swath of the developing world in the subsequent decades: a fenced-in territory of several hectares, offering developed industrial land for rental/lease, situated outside of the country’s custom territory, benefiting from investment and operational incentives, and supported by simplified administrative procedures. Their activities were initially focused exclusively on export market; investment was restricted to foreign capital; and activities were limited to manufacturing. EPZs have evolved dramatically since the 1990s, and the type of activities permitted has increased significantly. This is explored further along in the paper.

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Example: Masan Free Trade Zone, in South Korea, was started in 1970 as a prototypical export processing zone. It was then called the Masan Free Export Zone, and primarily dedicated to attracting foreign direct investment in manufacturing export activities. The objective behind the creation of Masan FEZ was to support the development of manufacturing activities complementing those of the Korean economy, but not competing against them. As a result, investment was constrained by qualification criteria, and the zone was kept relatively small – 10 hectares originally, expanded to 90 hectares. It however offered a prime investment and operating environment to qualifying enterprises, including excellent external infrastructure (port, airport, roads), and a high quality industrial park with solid management and support services. Masan’ small size did not annul its economic impact, which has been significant. It attracted prime foreign enterprises in the electronics industry. In 1971, these enterprises “imported” only 3 percent of their production entrants from Korea. In 1986, 45 percent of these entrants were sourced from Korea. It had thus achieved one of its crucial objectives: serving as a catalyst for economic diversification through the creation of national competitive clusters in high value manufacturing. Masan was restructured in 2000 to reflect the liberalised global and domestic economic environment.3

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Free enterprises (FEs): this is a variation on the EPZ theme, where the EPZ status is afforded to single enterprises outside the zone. Certain countries have operated or did operate both regimes in parallel, granting FE status to enterprises too large to be located in the industrial park, or dependent on some factor not available in the park. In the case of Mauritius, EPZ status has always been independent from location, and while industrial parks have existed since the inception of the EPZ regime, EPZ firms have not been obligated to locate in them. This has prompted some to incorrectly state that the entire island is an EPZ. The USA’s Foreign Trade Zone system provides certain enterprises with FTZ status – called ‘subzone’. That status applies in most part to existing enterprises wishing to have the benefits of the FTZ system but whose relocation costs would be uneconomic. Example: The Mauritius Export Processing Zone (MEPZ) is one of Africa’s most famous examples of an industrial special economic zone focused on export manufactures. Yet, the zone does have a specific industrial park giving it limited territoriality. The entire island is in fact the zone. Indeed, the regime applies to the national territory, and is granted to individual enterprises who qualify. These are free to locate anywhere on the island, in accordance with planning regulations. There are industrial parks, but these are not restricted to MEPZ enterprises. MEPZ enterprises therefore dot the national territory, and have historically located near labour force pools. Mauritius is only 1,800 km2. This obviously has greatly simplified access to key infrastructure, as no enterprise is more than 60 kms away from the international airport and the port.4

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Enterprise zones (EZs): these have been created for economic revitalisation in older industrial and urban centres of advanced economies. Enterprise zones have sought to

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bring regeneration and economic diversification to once striving regions, notably in the northeast of the United States (the so-called rust belt) and in the old textile, coal mining, steel and shipbuilding regions of Western Europe. Enterprise zones appeared in the United States in the late 1960s and in the United Kingdom in the mid 1970s. These zones are usually inside the custom territory, and are not fenced in. They offer a set of tax incentives and business support services to encourage investment. They generally encourage multi-activity by promoting economic diversification from the old industrial activities. Example: There are thousands of enterprise zones in the USA. One such zone is the Fort Myers/Lee County Enterprise zone in Florida. It is located on 10 mile2 part of the city. Companies investing there receive a number of tax and licensing incentives, such as exemptions on sales tax for certain consumptions, credits on corporate income tax for jobs created and for property investment. There are restrictions to the activities allowed, as the zone is in an urban setting, and privileges service industries.5 

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Freeports: The term freeport, as used by FIAS, introduced confusion into the typology, as freeports are generally known as special economic zones, per se. As such, freeports are the largest type of all, as they encompass very large portions of the territory, and include urban and rural areas, and incorporate large transport facilities like ports and airports. Freeports thus incorporate entire economic regions, the population that live and work in these regions, and the entirety of the economic activities that take place there. Example: China’s SEZs are the archetypical freeports. They were established in 1978 as a test toward controlled restructuring of the economy through the introduction of capitalism and foreign investment, after more than 30 years of economic and political isolation. Deng Xiaoping described this process as crossing the river by feeling for stones.6 Initially established only on the country’s coastal areas (three zones in Guangdong province and one in Fujian), the number of economic zones increased in the 1980s and 1990s, to include a large number of regions and towns, including in the country’s heartland. The Chinese strategy proved to be successful: China is the world first exporter of manufactures, and the first recipient of FDI among emerging economies. SEZs played a key role in this: between 1979 and 1995, the country received 40 percent of international FDI going developing countries. 90 percent of this went to the country’s coastal areas, and of this Guangdong Province received around 40 percent. The three Guangdong zones absorbed 50 percent of that. This means that these three special economic zones received a staggering 7.2 percent of FDI all emerging markets FDI between 1979 and 1995, and 18 percent of all FDI into China.7 Today, there are over 200 zones of varied types and sizes, focuses and sectoral concentrations: commercial zones, industrial zones, technological zones, and so on. China is a reference in the use of special economic zones as a tool for economic growth, and promotes special economic zones is Africa and other regions.

Claude Baissac ď&#x201A;ˇ

There are other types of specialised zones, such as technology parks, science and research parks, information technology and services parks, petrochemical zones, and so on. Each type focuses on specific sectors or activities, and provides an environment tailored to fit their unique needs. This environment can be extensive and sophisticated, both in terms of infrastructure and in terms of institutional support. Example: Technoparks, technopoles, or science parks are iterations on a common theme. These parks are usually created to stimulate linkages between universities and business. One of the first and most successful science parks are Research Triangle Park in the USA and Nice-Sophia Antipolis in France. RTP was founded in 1959 as a non-profit organisation. It derives its name from its position between three major universities, University of North Carolina, Duke University, and North Carolina State University. The park has fostered the creation of clusters or has linked into industry clusters through its research and development activities. Major companies operate facilities in the park, and have R&D programmes that reach into universities. Venture capital funds are also present, providing funding to innovation and supporting the transition of new ideas into businesses. RTP hosts about 140 R&D facilities, employs over 37,000 persons, and contributes USD 2.7 billion per annum in salaries only.8

The FIAS typology presents one main obstacle: it uses the term special economic zones to encompass all the above zone types. This introduces confusion as most countries, institutions and authors see special economic zones as a type of zone similar to the above described Chinese freeports. For instance, in a 2005 study, OECD distinguished free zones, special economic zones, and export processing zones.9

ILO has devoted considerable resources to the issue of SEZs, notably in terms of their employment and economic impact, and labour conditions. Its typology is the very reverse of that of FIAS: it uses the term Export Processing Zone as the overall term to describe SEZs, and it uses special economic zone as a sub-type of EPZs10. ILOâ&#x20AC;&#x2122;s definitions table is in the Annexure. The World Export Processing Zone Association (WEPZA)11, created by UNIDO in 1978 and operating as a non-profit organisation, changed its name to World Economic Processing Zone Association in an attempt to broaden its appeal. The expression did not take, probably in part because it still emphasised processing activities, a term generally associated with manufacturing processes, and added yet another term to an already confused field of play. The wide variety of activities now allowed in special economic zones also makes the reference to processing too restrictive, particularly when service industries are taken into accounts â&#x20AC;&#x201C; including tourism.

The FIAS use of the term special economic zones as an overall designation for the concept is useful from many points, and notably from definitional and policy design standpoints. This is discussed further below. This is provided the confusion between Chinese-style SEZs and freeports is resolved. In this regards, WEPZA offers a useful way to categorise zones:12

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

Wide area zones: these are zones occupying superficy greater than 1,000 hectares/100 km2, and with a resident population. Chinese SEZs fall into this category, and so does the Aqaba Special Economic Zone.



Small area zones: these are “generally smaller than 1,000 hectares, normally surrounded by a fence. Investors must locate within the zone to receive benefits. No resident population, although they may contain worker dormitories”.13 The upcoming Chinese-financed SEZ in Mauritius is of that type, are as most EPZs and FTZs.



Industry specific: “zones that are created to support the needs of a specific industry such as banking, jewellery, oil and gas, electronics, textiles, tourism, etc. Companies invested in the zone may be located anywhere and receive benefits. Examples include India's Jewellery Zones, or many offshore banking zones.”14



Performance specific: “zones that admit only investors that meet certain performance criteria such as degree of exports, level of technology, size of investment, etc. Companies can be located anywhere. Examples include India's export oriented factories, the Mexico Maquila program, or a research park.”15

This report makes use of the FIAS terminology, but replaces the term freeports with the term wide area special economic zone (W-SEZ, for lack for a better acronym) to describe the Chinese example, without specifying the superficy of these W-SEZ as this varies from case to case. Cities like Singapore or Hong-Kong, sometimes referred to as freeports or free ports, are not considered special economic zones. The reason for this will become clear in the following section.

As a final comment to the issue of terminology and definition, the SEZ landscape is extremely dynamic, and innovative development models are continuously established, blurring boundaries between the different types of zones and creating new ones. Flexibility is thus required.

Global economic footprint Accounting for the true nature and impact of the SEZ phenomena is in large part a function of definitions. For instance, while ILO counts the SEZs of advanced economies in its statistics, FIAS does not. According to the ILO’s database on EPZs, the number of countries with SEZs (per this report’s typology) has grown from 25 in 1975 to over 130 by now. The number of SEZs has literally exploded, from79 in 1975 to over 3,500 today.16 This represents a 44 times expansion in 30 years. As shown in Chart 1, the number of SEZs increased significantly in the 1990s, and grew exponentially from the late 1990s on.

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FIAS gives a figure of 2,500 zones currently operating in emerging and developing economies. This thus excludes the 700 or so Foreign Trade Zones of the USA.17

SEZs would the world over directly employ between 63 (FIAS) and 68 million persons (ILO).

There is much debate about the employment multiplier effect of SEZs, with analyses putting it at between 0.25 to two, where one direct formal position in an SEZ would create between 0.25 and two formal and informal positions/jobs outside of the SEZ.18 Using an average value of 1, SEZs would generate approximately 65 million additional formal and informal employments globally. SEZs would thus be responsible for about 130 million jobs. This is a small proportion of the worldâ&#x20AC;&#x2122;s labour pool, about 1 percent (based on ILO data). However, China has the lionâ&#x20AC;&#x2122;s share in this, with 40 million of the 68 million direct employment figure.19 This means that the rest of the world directly employs about 28 million persons in SEZs. Interestingly, however, the number of SEZ employment in the rest of the world is growing faster than it is in China, from 5 million in 1997 to 26 million in 2006. This represents a growth factor of 5 over less than 10 years. This is very significant. China experienced a doubling of employment in the same period.

Table 1: Special economic zones key demographic figures 1975

1986

1997

2002

2006

Countries with SEZs

116

130

Number of SEZs

176

845

3,000

3,500

World Direct Employment

China Direct Employment

Source: J P Singa Boyange, Database on Export Processing Zones

Figure 2: SEZ population growth between 1975 and 2006 4000 3500 3000 2500 2000 1500 1000 500 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

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Source: J P Singa Boyange, Database on Export Processing Zones

Estimates for exports out of SEZs vary. According to FIAS, SEZs in emerging and developing countries would have exported approximately USD 850 billion of goods and services per annum in the mid-2000s. This would correspond to approximately 7-8 percent of all global exports, and slightly less than 20 percent of exports from emerging and developing economies.20 This is significant, as it means that SEZs contribute to exports in higher proportion than cumulative rest of the economies of developing countries. While this should not be surprising since SEZs are mostly focused on export markets, this has important implications on their economic impact.

The value of Investment into SEZs is almost impossible to estimate. There are two key sets of data, but none of them exist in any reliable fashion: annual flow of investment into SEZs and stock of investment. ILO has produced some data, but it is not considered reliable. FIAS does not provide aggregate data, but makes references to specific cases: Available data suggests that SEZs are an important destination of FDI in some countries. In the Philippines, for example, the share of FDI flows going to the countryâ&#x20AC;&#x2122;s eco-zones increased from 30 percent in 1997 to over 81 percent in 2000 (UNCTAD, 2003). In Bangladesh, $103 million of the $328 million of FDI inflows were registered in EPZs. In Mexico, the share of annual FDI accounted for by maquiladora operations increased from 6 percent in 1994 to 23 percent in 2000 (Sadni-Jallab and Blanco de Armas, 2002). And in China, SEZs account for over 80 percent of cumulative FDI. However in many other countries, as reviewed later below, zones have played a marginal role in FDI attraction and most investment is of domestic origin.21

The overall footprint of SEZs in terms of employment is small, but growing. Available evidence suggests that SEZs have a greater relative footprint in terms of attracting FDI and generating exports. This indicates that SEZs are climbing up the ladder away from lower productivity activities to higher productivity activities, and that they constitute environments with fairly high productivity.

Masan Free Trade Zone, previously the Masan Free Export Zones, in South Korea, provides an illustration of the kind of high productivity environment an SEZ can be turned into. The zone was created in 1970 as a prototypical export processing zone, primarily dedicated to attracting foreign direct investment in manufacturing export activities. It was to support the development of manufacturing activities complementing those of the Korean economy, but not competing against them.

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Investment was constrained by qualification criteria and the zone was kept relatively small – 10 hectares later expanded to 90 hectares. It offered a prime investment and operating environment, including excellent external infrastructure (port, airport, roads), and a high quality industrial park.

In 2007, MFTZ hosted a total of 89 firms. Of these, 52 were foreign-owned companies, with Japanese firms representing nearly 40 percent of the total. Koran firms represented over 30 percent, and the balance was shared between American, European and Asian companies. FDI capital in the zone stood at USD 128 million out of a total investment of USD 217 million. It employed 7,500 workers, and exported over USD 3.2 billion of goods. 95 percent of these exports are in electrical and electronic goods. The zone occupies 0.3 percent of Korea’s industrial land, but has the highest export value per worker of nearly USD 500,000 per annum. This is enormous by any standard. The zone contributes 10 percent to South Korea’s trade surplus. The zone further contributed USD 1.6 billion to the national economy through purchases of domestic production entrants (slightly less than USD 1 billion), labour wage (USD 220 million), and tax, consumption of electricity and so on (USD 410 million).22

Constituents of special economic zones So, what exactly are special economic zones, and what distinguishes them from other types of economic zones?

Structurally, SEZs have at least three distinct attributes:

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They are formally delimited portions of the national territory provided with a set of investment, trade and operating rules that are more liberal than those prevailing in the rest of the national territory. SEZs are therefore defined through a specific regulatory regime.



The administration of the regime usually requires a dedicated administrative structure, centralised or decentralised. The attributes of this structure vary according to the nature of the zone regime, the number of zones existing, the role given to the private sector in developing and operating zones, and many other factors. This is explored further along.



They are usually provided with infrastructure capable of supporting the activities of the firms and economic agents operating within its boundaries. This infrastructure

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usually includes real estate, roads, electricity, water and telecommunications. In most cases, the infrastructure is formally organised under the form of industrial or activity parks. This physical component is often critical to the attractiveness of the zone. To this must be added the key transport infrastructure connecting the zone to its sources of entrants and its markets.

Regime

Without this specific regime, special economic zones would not be special; they would be normal economic zones, business or activity zones or industrial zones. An SEZ regulatory regime usually comprises the following components:

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

Investment regulation component: the overall domestic investment climate is improved in increase the speed and flexibility of investment and business operation. This usually includes a number of steps: domestic investment rules and regulations are simplified and rationalised in order to lower investment thresholds for foreign capital; investment and selection criteria are rendered transparent and objective; company registration procedures are simplified and processing times are reduced; exchange controls are lifted, both for capital import and exports, notably for investment and profits repatriation.



A trade regime and customs component: the special economic zone is put outside of the domestic trade and customs territory, and the SEZ functions as a duty-free area. All imports into the zone are duty free, including capital goods, intermediate goods and other production entrants. There are no export duties. Import duties are charged onto any zone asset which was provided duty free status once it is ‘exported’ into the domestic economy. There are several mechanisms for this, including fully duty-free regimes, in-bond regimes, and duty drawbacks regimes. The consensus is that these two latter regimes are better suited to small zones like bonded warehouses in ports or airports, or single plant EPZs. Customs administration is increasingly automated through software systems administered directly by enterprises, and controlled by customs administration.



A tax component: in addition to the duties exemptions, most SEZs include tax incentives of some sort in order to provide a lower tax burden compared to the domestic economic, improve the attractiveness of the zone, and render it internationally more competitive. Tax incentives are mostly structured as tax holidays or exemptions. These have usually included holidays for periods of 10 years on corporate income tax, personal tax of expatriates, VAT or sales tax between zone companies, and social and employment related charges. An alternative approach has been to provide low nominal tax rates for enterprises and individuals working or living in the zone.

Claude Baissac 

An operating component: the general operating environment or business climate is simplified. In some cases, labour regulations are simplified, with a view to provide more flexible employment and redundancy conditions. The same applies for the diverse set of applications and transactions relating to the acquisition or rental of real estate, the contracting of utility services, and so on.

These components are usually regulated by a multiplicity of laws, by-laws, regulations and rules. One of the objectives of SEZ regimes is to simplify the regulatory environment. As a result, SEZs often benefit from specific legislation which encompasses the above components. In some cases existing relevant national legislation is replaced by such legislation through a single act of Parliament or executive decree. In other cases, this legislation compacts and simplifies national legislation, and provides a single framework for its application.

A typical regulatory regime will include the following components: 

A statement of the general objectives of the SEZ, in terms of economic growth and development contribution to the national economy, investment creation, employment generation and labour force skilling, infrastructure investment, private sector participation, and so on.



The general characteristics of the SEZ, including its activities, sectoral focus, types of firms targeted and so on.



The definition of the portion or portions of territory given SEZ status, their physical delimitation and surfaces.



The Government authority holding ultimate responsibility for the SEZ, and if these are different, the governance structure in charge of administering it.



A statement of the SEZ financing, development and management principles, with reference to the expected respective roles of the public and private sectors.



The investment regime.



The trade and customs regime.



The incentives regime.

Administration

SEZ regimes are instruments of the sovereign state. The state makes the decision to create the zone, to dedicate a portion of its territory or allocate SEZ status to specific enterprises, to provide

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a dedicated regime at variance with the domestic regime on investment, trade, taxation and so on in order to create an environment of greater attractiveness to capital. The state promulgates the necessary legislation. It does so because it sees utility in it. Accordingly government authority is required to regulate and administer the regime, to enforce legislation, and to maintain control of the environment thus created. There are several models, from highly centralised and bureaucratic, to decentralised and non-bureaucratic. In this regard there have been very significant changes in the past twenty years or so, with the state increasingly concentrating on regalian functions and transferring responsibility for development and management to publicprivate partnerships. As a result, governance is divided between strategic planning, regulation and oversight on one hand, and development implementation and management on the other. This is illustrated in this report by the case study on Aqaba.

Infrastructure

The infrastructure component of special economic zones is in most cases a critical element of their attractiveness and raison d’être. This is particularly true with commercial free zones, export processing zones, and freeports. One of the motivations of SEZs is to correct the lack of availability of adequate infrastructure required for cost-effective business operations. This includes serviced industrial land, office and business parks, and access to transport infrastructure like roads, airports and ports. Utilities are also included, and usually comprise power substations, broad-band internet, waste water treatment plants, and so on.

In EPZs and FTZs, the infrastructure offering is usually limited to the industrial zone itself and connections to existing national economic infrastructure. These zones are most effective when located within economical distance of major transport infrastructures.

Major transport infrastructure, and in some cases power generation, are incorporated within WSEZs. In some cases the SEZ will incorporate existing infrastructure. In others, infrastructure will be developed ex nihilo to serve the SEZ.

Strategic context – policy rationales Policy-wise, SEZs are formed to positively impact economic transformation. Yet what that means significantly varies, and has considerable evolved over the past 30 years: 

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SEZs are generally developed to provide a number of static economic benefits. These usually include employment creation, the attraction of foreign direct investment, the generation of foreign exchanges through exports of products and services, the creation of value added, and the development of commercial and industrial linkages

Claude Baissac

between firms operating in the zone and firms operating outside of it (generally referred to as domestic firms). 

In addition, SEZs are expected to encourage dynamic economic benefits. At the level of economic actors (enterprises, managers, professionals, workers), these encompass the promotion of non-traditional economic activities, hard and soft technology transfers, an encouragement to domestic entrepreneurialism, and the promotion of economic openness. At the level of the country, SEZs are formed with the goal to affect positive changes to the competitiveness of a country or a region of a country. Stated differently, SEZs are developed so that the economic entity targeted may see an improvement in its comparative advantage.23

Specifically, and according to FIAS, SEZs are created with four distinct and not mutually exclusive policy goals: In support of a wider economic reform strategy. In this view, EPZs are a simple tool permitting a country to develop and diversify exports. Zones are a way of reducing anti-export bias while keeping protective barriers intact. The EPZs of Taiwan (China) and the Republic of Korea follow this pattern. To serve as “pressure valves” to alleviate growing unemployment. The EPZ programs of Tunisia and the Dominican Republic are frequently cited as examples of robust, job-creating programs that have remained enclaves with few linkages to their host economies. As experimental laboratories for the application of new policies and approaches. China’s freeports are classic examples of this category. Financial, legal, labor, and even pricing policies were introduced and tested first within the freeports before being extended to the rest of the economy. To attract foreign direct investment. Most new SEZ programs, particularly in the Middle East, are designed to attract foreign investment.24

Over the past 30 years, there has been a progressive shift of focus toward the dynamic contribution of zone to economic restructuring and their use as an instrument in the service of competitiveness enhancement: 

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In the 1960s and 1970s, Export Processing Zones were developed as addendums to protectionist economic strategies focused on import-substitution. The usually lacklustre performances of these strategies – in terms of investment, employment, contribution to growth, and so on – led countries like Brazil, India, Bangladesh, Kenya, and Mauritius to create enclaves for foreign-oriented activities. These addendums were supposed to absorb surplus labour without immobilising a domestic

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capital base that was oriented toward domestic production. The countries applying that strategy were initially only interested in the static economic benefits of SEZs. 25 

At the same period, a number of Asian countries made the choice to focus their economic strategies on exports rather than import-substitution. This growth model became known as export-oriented growth and led to the emergence of the newly industrialising countries of East and South East Asia: South Korea, Taiwan, Singapore, Malaysia, and to a lesser extent Thailand.



China’s approach to SEZ has been one of the most innovative and radical. The initial policy intention was not primarily for SEZs to create static benefits and absorb surplus labor. While this was in itself an important long term requirement for the China, the government chose to use the first four EPZs as a gigantic experiment in controlled capitalism once it became clear that the country was failing to effect economic development through the strategies of the Mao era.26



Changes to the international politico-economic order in the 1980s put an end to the inward-looking strategies of the 1950s and 1970s. Economic liberalisation saw the protectionist policies of the era dismantled. Many argued that SEZs were losing relevance in this new environment, as trade and investment barriers were disassembled. Yet, the number of SEZs continued to increase dramatically.

The SEZ paradox: growth against the grain In the late 1980s-early 1990s many analysts and observers questioned the relevance of SEZs in a liberalised international economic order. Orthodox economists held dim views of the static economic impact of export processing zones, and doubted their capacity to achieve much dynamic advantage.

For instance, in the late 1980s economist Peter Warr published a series of empirical analyses of export processing zones in Asia attempting to balance out the economic costs and benefits of a number of cases. His results showed that EPZs were either welfare negative or marginally beneficial. He was published in the World Bank Research Observer. There, he stated that “the benefits from EPZs are limited. They are definitively not "engines of development." For countries in the early stages of development, zones can be an efficient and productive means of absorbing surplus labor. Even then, they will never be more than a modest part of the solution to the vast employment problems of these countries”27. EPZs also expose domestic businesses to example. Warr’s methodology, ‘the enclave model’, became the standard approach to assessing the contribution of EPZs.

In a 1992 report entitled Export Processing Zones, the World Bank posited that these zones had had an ambivalent impact on both static and dynamic growth. The report stated that while in

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some cases EPZs had contributed to trade and investment liberalisation; in others they had permitted the continuation of highly protective trade and investment regimes, thus damaging long term growth prospects.28

Other economists contributed, and the findings were consistent with those of Warr and the World Bank.29

Leftist observers were even more critical of SEZs, and particularly of EPZs. These were seen as centres of capitalist exploitation in the Third World and ‘engines of immiseration’. Studies documented the working and living conditions in zones across the world, from Mexico to Thailand. Several studies argued that the ‘sweatshops’ manufacturing garments or toys for the First World were hardly contributing to economic and social welfare, and were greatly polluting and exploitative. Kaplinski, describing the zones of the Dominican Republic called them immiserating, accusing them of being foreign controlled enclaves exhibiting employment conditions that were far worse than those prevalent in the domestic economy.30 Labour and women’s rights organisations took on EPZs at national, regional and global levels, seeking to improve working conditions and denounce abuses. The International Confederation of Free Trade Unions (ICFTU) became particularly active on the issue, conducting case reviews and surveys, providing economic evaluation of their impact, and conducting advocacy actions. Not surprisingly, the ICFTU found EPZs to be welfare negative.31 Many observers also questioned the raison d’être of SEZs in a post-GATT world, arguing that SEZs had been created in a mostly illiberal trade environment, and that they had grown on the back of preferential trade agreements like the European Africa-Caribbean-Pacific Agreement (ACP), the Generalised System of Preference (GSP), the Textile Multifiber Agreement (MFA), the American Africa Growth Opportunity Act (AGOA), and so on. The rise of the World Trade Organisation (WTO)32, the progressive disappearance of most the exceptions to the Most Favoured Nation (MFN) rule, and the introduction of agreements against export subsidies, import-substitution and domestic content, were expected to spell an end to SEZs. In a liberalised world, there would be no need for them.33

In a rare feat of bipartisanship, it seems, the two opposite sides of the development debate, separated by a chasmic rift on most issues, seemed to agree against SEZs – albeit for very different reasons.

Yet, in spite of the apparent lack of support for them from international organisation, organised labour and the economic professions, the number of SEZs worldwide literally exploded from the 1990s onward. As seen earlier, it is estimated that there are well 3,000 special economic zones today, operated by some 135 countries.

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Policy-makers, it appeared, were not listening to the experts.

This reality, obtuse to critiques and analyses, required theoretical and empirical reconsideration. This began in the mid-1990s with the introduction of neo-institutional and neostatist/developmental state perspectives on the SEZ phenomenon. These perspectives looked beyond static economic aspects and a priori critical politico-economic arguments (such as those rooted in neo-classical economics and trade theory) to attempt to resolve the contradiction between policy practice and the policy analysis models whose conclusions should have led to a terminal decline in SEZs. Romer (1993)34, Johannson (1994)35, and Johannson and Nilsson (1997)36 notably contributed to a reappraisal of SEZs that emphasised the roles of knowledge, technology and institutions in the creation of a critical ‘gravitational’ mass toward industrialisation, economic diversification and the creation of emerging industrial and industrial-based service clusters. SEZs, they posited, worked because they concentrated economic assets and achieved agglomeration, notably through the exchange of information and knowledge. SEZs where adopted because they seemed to have a positive impact on economic transformation.

About knowledge, innovation and technology transfers, Romer stated that Ideas include the innumerable insights about packing, marketing, distribution, inventory control, payment systems, information systems, transactions processing, quality control, and worker motivation that all are used in the creation of economic value in a modem economy.37

Johannson and Nilsson proposed that Since one purpose of EPZs is to attract foreign direct investment and use foreign knowledge and capita1 to create an export base, local firms may be stimulated to enter the export market by learning from the experience of the foreign affiliates. That is, the foreign affiliates may have a catalytic effect on potential domestic exporters and EPZs may thus contribute to the host country’s total exports in two different ways: directly, since the exports from the EPZs is part of the country’s total exports but, more importantly, also indirectly by inducing local firms to export. Further, this catalyst effect could be more than internal to EPZs, that is, affect not only local firms which operate. or are induced to operate within the EPZs, but also spill over to domestic firms outside the EPZs.38

The new wave of analysis did not discount the critiques, but sought to incorporate them to attempt to explain why countries with otherwise limited resources continued to adopt a policy tool that no one seemed to like.

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Past critiques have played an important role in advancing the understanding of SEZs, and have brought real progress: in how they are financed and governed; in how labour issues are addressed to resolve some of the very real abuses that have occurred in the past in some countries. For instance it is important to note the key role played by South Korean EPZ workers in the country’s democratic transition in the late 1980s.39 Similarly, the negative appraisal of their costbenefit ratios probably influenced the search for more cost effective ways to develop and operate SEZs. This is discussed further below. Nonetheless, the apparent explicative failure of what could be termed ‘consensus frameworks’ resulted in a reappraisal of how the costs and benefits of SEZs are assessed, with a view to better explain why governments continued deploying a tool very few observers supported. The ‘dynamic impact’ approach provided useful insights into why policy-makers continued supporting a policy tool that seemed to have so few advocates.

That failure of policy analysis and social critique to adequately explain the phenomenon (or stop its proliferation) has meant that both have had fairly a limited influence on policy formulation. While they focused on negative aspects of SEZs, they appeared to miss their most important dimension: their dynamic economic contributions.

From a policy-making standpoint, it would appear that this dynamic contribution seemed to justify policy-makers ignoring or side-stepping political opposition to SEZs and the sceptical views of influential international organisations.

The latest scholarship on the relationship between SEZs and growth indicates that policy-makers were right. In a recent paper, Tyler and Negrete (2009) formally integrate the insights of the new growth and neo-institutional approach into the SEZ-sceptical neoclassical framework to test the following proposition:

Overall, the existence of a functioning EPZ may accelerate the rate of technological progress in a developing country. Consistent with the modern theory of endogenous economic growth, the presence of EPZ may accordingly speed growth in poorer countries and accelerate their convergence to richer country income levels.40

This is made possible by a number of critical mechanisms:

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A major feature (and objective) of EPZs is the attraction of foreign direct investment (FDI) to the host country. The accompanying increase in investment and capital stock is consistent with increasing the capital-labor ratios in poorer countries to levels more in line with more advanced countries. Moreover, diminishing returns may be overcome by sale of output abroad at international prices (under small country assumptions). More critically, technology transfer, expedited through an EPZ, may indeed come mostly from FDI – lured to the country by the EPZ and the associated more attractive investment climate. Accordingly, an EPZ may facilitate the diffusion of technology, either in productive or management techniques. The presence of EPZs can act as a catalyst by stimulating local firms to export by demonstrating by example and partnering arrangements how to produce, market, sell and distribute manufactured products in world markets. Also, success in expanding exports and generating employment, achieved in part through EPZ adoption, may also have a more aggregative demonstration effect in helping advance the cause of better economic policies and institutions.41

The authors conclude that there is a positive significant relationship between the presence of SEZs in a country and that country’s growth performance. They conclude that “governments that have eschewed the use of EPZs might be well advised to re-examine their policies.”42

A reality changed? The birth of the ‘new model’ SEZ Most of the zones scrutinised in the 1980s and 1990s were export processing zones financed, administered and managed by governments and state bureaucracies.43 Governments planned for them, financed them through the general budget, directly regulated and administered the EPZ regime, did the investment promotion, interfaced with investors, and directly managed the real estate side of the operation – maintaining, renting, expanding, and so on. Most of the zones created in the 1960s and 1970s were built and operated on that model. These zones represented relatively heavy capital investments and required relatively costly administrative structures. The infrastructure and real estate sides of SEZs were a key part of the incentive structure, and were either provided free to the investors or at huge discounts. From financial, budgetary and fiscal standpoints these SEZs represented a burden to the state.44

Further, the state-owned and -operated zones of the time faced a wide array of regulatory restrictions which decreased their ability to attract investment and generate higher value added; thus decreasing their welfare impact. For instance, domestic companies or investors were prevented from investing and operating in SEZs. Furthermore, zone companies were not allowed to sell production to the domestic market. Finally, the type of activities and sectors allowed to invest were restricted according to narrow sets of target enterprises or sectors. In most cases, countries would seek to attract high value added manufacturing operations in industries like consumer goods, electronics, automotive, etc.45 This form of selectivity worked for only a few countries who could afford to choose the type of companies they wanted to see invest. This was

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the case of South Korea or Taiwan, who would incentivise higher technology, blue chip foreign companies to invest. It was much less the case for the Dominican Republic or Mauritius, who tried to attract high tech companies but conspicuously failed.

This state-owned, enclave model was one of the key restrictions to a greater developmental impact by SEZs: a high capital investment, heavy administrative and incentive burden, restrictive investment and operating rules combined to reduce the attractiveness of SEZs and their economic contribution.

The late 1980s and 1990s saw progressive but ultimately radical changes to the SEZ model. Central American and Asian countries played a pioneering role in a change which was as much organic as it was informed by policy analysis.46 There were both push and pull factors in what amounts to the birth and then generalisation of an exemplary form of public-private partnership.

Push factors included the drive for macroeconomic stability and the resulting need for budgetary and fiscal discipline: it became too expensive for most developing countries to take care of all aspects of creating and running special economic zones. From that standpoint, static critiques were incorporated. Similarly, the birth of the World Trade Organisation in 1995 forced a change in the incentive regimes that typified SEZs, and specifically incentives linked to exports.47, Liberalisation turned the prevalent economic model on its head: the import-substitution strategy â&#x20AC;&#x201C; having conspicuously failed in creating the hoped for sustainable growth model chosen by most of Latin America, Africa and part of Asia â&#x20AC;&#x201C; was abandoned in favour of investment, trade and exports.48

Pull factors included the opportunity afforded by SEZs to turn into successful commercial ventures on the real estate development and management side. The first private zones were for the most part entrepreneurial commercial ventures which took advantage of the opportunities offered by a growing demand for serviced land by foreign investors. As a result, these private zones were mostly commercial free zones and export processing zones, and fell under the existing FZ/EPZ laws in place. Examples of these early zones are found in Mexico (the famous maquiladoras operating along the border with the USA), where private industrial parks appeared early on and provided innovative services to investors. Private export processing zones were created in the Dominican Republic, in Costa Rica, El Salvador, Honduras and Colombia.49

These early examples of private SEZs alerted governments that a pragmatic policy solution existed which would permit them to achieve much of the sought after objectives while decreasing the budgetary and administrative burden. In the 1990s, the concept of public-private partnerships took root.50

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Today, according to FIAS, 62 percent of the 2,300 SEZs operating in developing countries are privately owned and privately operated. This compares with 25 percent of a much smaller population in the 1980s. Mexico then had the lion share of private zones.

There is a direct correlation between the loosening of investment criteria, the new public-private partnership, and the growth and economic relevance of special economic zones.

From enclave to integrative economics The import-substitutive model posited that foreign investment and trade are counterdevelopmental for under-developed economies. The structuralist argument dominating policy debates in the 1940s-1970s, which conceived import-substitution as an economic strategy, was that foreign investment and trade reinforce structural biases in favour of the production of commodities and low value added goods toward export markets. In return, these countries import high value added manufacturing products, leading to perennial balance of payment problems and non accumulation of capital.51

Import-substitution strategies provided very limited economic returns, and generated massive national debts and capital flight.52 In parallel the export-oriented route chosen by the Asian developmental states known as Newly Industrial Countries (NICs) demonstrated that structural economic biases could be reversed within an open investment and trade system making use of platforms like export processing zones and free trade zones. While trade and investment were liberal in the SEZ sector of the economy, they were less so in the domestic sector. The SEZ sector provided for select openness, and allowed governments to progressively liberalise the domestic sector as it became more competitive and climbed the ladder of higher productive industrial processes. In this the SEZ also assisted by fostering linkages between SEZ firms and domestic firms.

Liberalisation and the rise of the NICs led to a rethink of the restrictive investment criteria that had been part of the make-up of special economic zones. Since the 1990s, crucial changes have made that greatly increase the size of the pool of investment authorised in SEZs. These changes have been procedural as well as substantive. Procedurally, investment permits and application processes – notably import/export licences, capital investment, earnings repatriation, utilities connectivity, etc. – have been largely simplified and rationalized. ‘One stop shops’ have been generalized, the number of steps and documents required have been dramatically reduced, automatised and accelerated. Selection criteria have been in large part eliminated in order to remove the arbitrary powers of administrative officials who do not have the competency required to effectively ‘select’ enterprises. This has had the side benefit of decreasing the opportunity for corruption. Some

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countries have replaced ‘positive’ treatment of investment application with ‘negative’ treatment: unless an application is questioned or rejected within a specific period (usually within five working days of the application being filed by the candidate) it is automatically approved.

Substantively, the type of activities allowed to locate in SEZs was increased beyond traditional industrial and trade-related activities. Services to enterprises as well as to international markets were encouraged, facilitated by the telecommunications and internet revolutions: accounting services, IT programming, back office functions, call centres, vocational training, industrial maintenance, logistics services, quality control, industrial design, product exhibitions and trade fairs, and so on. For many industries, the ability to respond nimbly to changes in market conditions is critical to competitiveness and survival, and SEZs provide the environment that allows them to do so. The liberalisation of the types of activities permitted has thus allowed the creation of pools of competence around industry clusters within SEZs. This is the case with the automotive cluster in Mexico, the electronics cluster in Malaysia and the textile and garment cluster in Mauritius.

The enclave model of the import-substituting era restricted activities. It also restricted investment to foreign capital as it equated domestic investment in SEZs as capital flight. The model thus created a dual economic structure where the SEZ was not simply a regulatory enclave but also a physical one. It was feared that without controlled physical separation and regulatory isolation, SEZs would ‘contaminate’ the domestic economy.

Today, SEZs are opened to domestic capital in order to provide it with the same environment and opportunities as that provided to foreign investors. This opening decreases the risk of turning SEZs into ‘foreign’ enclaves provided with trade and financial incentives from which domestic investors do not benefit. It corrects inherent inequality of treatment between domestic and foreign capital and decreases the risk to see domestic firm invest in foreign SEZs or countries that offer better investment conditions than in their domestic market.

There has thus been a shift from enclave economics to integrative economics. While the former isolated the zone for fear of its dynamic impact on the domestic economy, the latter seeks such dynamic impacts, and promotes ‘pollination’ through investment, trade, skilling and demonstration effect. The SEZ serves as a gateway into the globalised economy, and plugs the domestic economy through in a way that allows policymakers to modulate the scope and intensity of such pollination.

This integrative model has had extremely beneficial effects. The enclave model mostly attracted foreign investors looking for a very narrow set of production entrants which would give them a comparative advantage over the short- to medium-terms: lower labour costs, subsidised land and utilities, tax holidays and so on. These investors were thus very sensitive to small changes in the cost offering of a particular country, and could fairly easily relocate to cheaper countries. This

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was particularly true with light manufacturing activities such as garments, toys, entry level electrical and electronic assemblies, and so on. These infamous ‘footloose’ industries had very little rooting into the domestic economy, and contributed to it mostly through static benefits. And indeed, once the costs of providing the infrastructure and incentives, and managing the regime and the park had been offset, the benefits were limited.

The opening of SEZs to domestic capital has largely decreased their dependency on the footloose enterprises, even though these still have a role to play in relation to employment and soft technology transfers. In today’s SEZs, domestic and foreign capital associate through equity or commercial ventures of varied forms and purposes. These ventures give domestic firm access to foreign capital, technologies and savoir-faire, and provide access to markets that would otherwise be beyond the reach or costly to serve. SEZs can thus assist firms short-cut processes that would be more costly. They can help these firms integrate commodity chains and industry clusters that would be otherwise inaccessible, either as venture partners or suppliers to principal buyers (OEM or second- and third-tier suppliers).

Domestic firms in SEZs have a vested interest in seeing longer term competitiveness enhancements when foreign firms may be tempted by relocation overseas.

Another crucial difference between domestic and foreign firms is the fact that they tend to reinvest their profits locally, whether within our outside the SEZ. Mauritius is a telling example, described in Part B of the report.

Another important change to the previous regulatory straightjacket of the enclave model has been a lifting of the restriction to sell SEZ products or services to the domestic market. The sine qua none condition to this is that duties must be paid according to national legislation, and imports conform to other regulation (environmental, health and safety, etc.). It is now agreed that this allows consumers in the domestic market to benefit from greater product choices and better prices. Similarly, domestic raw materials, intermediary products and raw materials can more easily be sold to buyers inside the SEZ. These sales are considered as exports and generally earn foreign exchanges, which benefits the trade and payment balances. Economists and policy observers have caught on with the SEZ phenomenon. The World Bank’s FIAS report of 2008 represents a clear change of view. It is worthwhile citing it at some length: The dynamics of recent trade liberalization place great importance on the continued development of focused investment and export promotion mechanisms such as SEZs that can provide a simplified regulatory environment. The prevalence of zones in industrialized countries with open economies also underscores the importance of the concept for competitiveness. Mechanisms that provide efficiency advantages are even more important with the advent of modern production and distribution concepts

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and approaches, and the reduction of transaction costs. There is also a continuing role for zones in many countries to incubate and accelerate policy reform. Given their potential flexibility and efficiency advantages, SEZs could continue in the future to serve as a viable tool for developing countries, especially when reforms are ex ante integrated into the overall strategy.53

The division of labour in SEZ public-private partnerships The new model SEZ emphasises the leveraging and combination of public and private resources and capabilities to create public and private returns in the most efficient format possible.

To government go the responsibility of policy formulation and the creation of the strategic framework within which an SEZ programme is defined. This includes the economic focus of the zone programme, its expected economic benefits (investment, employment, foreign exchange, economic value added, and so on), the type of zone/zones to be developed, the proposed location/locations, the regulation envisaged, the governance structure foreseen, the financing mechanisms, the role of the private sector, and so forth.

The benefits of leveraging the private sector are many. They include a reduction of government overstretch and borrowing54. In addition, private sector participation brings improvements in efficiency, under several forms:

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

Focus on strategic functions such as policy formulation, regulation and oversight.



Limited financial commitment to capital expenditures by concentrating on funding infrastructure and projects that cannot attract private sector participation, thus reducing government administrative overstretch and borrowing.



Access to efficiency in investment, management and operations: private sector firms seek and obtain efficiency through a commitment to cost recovery. They will not participate in a project without the ability to recover costs.



Access to operational efficiency: private firms have an incentive to contain costs and increase productivity to improve profitability. Because of the normally less onerous recruitment and procurement procedures, private firms usually achieve lower cost overruns on new projects, lower staffing levels, more rapid adaptation of new technologies and processes and engage in more rigorous billing and collection.



Opportunities to tap competitive discipline: financial pressures generate a need to remain competitive against domestic and regional substitutes. As such, private sector participants adapt to market changes and introduce innovations to remain viable in the face of changes in the competitive environment. Public sector owners often have

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alternate means to deal with such pressures by introducing reduced or subsidised prices, or by absorbing losses or withholding dividends to the government. 

Access to management expertise and technology: private sector participants introduce technology, skills and expertise in running businesses in a commercial manner.55

There are several models for private sector participation56, with currently six main forms:

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

Service contracts: in these contracts, ownership of the zone remains in the hand of government, and responsibility for overall management, operations, maintenance and capital investment remains at the charge of the public authority. However, aspects of management or services are subcontracted to specialist firms. Service contracts apply mostly to management, operations and maintenance. For instance, the management of a zone’s real estate assets can be contracted to a third party in order to relieve government from directly handling the task. Service contracts usually last between six months to two years, and are defined through service level agreements which clearly identify the tasks and responsibilities of each party, the performance standards and exit clauses. Service contracts are best suited to existing, well managed, zones. They are not suited to under-performing zones needed capital or turnaround expertise.



Performance contracts: these contracts represent a step-up in the involvement of private sector and the devolution of responsibilities away from government. In performance contracts, government still own the industrial zone, and remains in charge and capital investment. However, operations and maintenance of the zone are transferred to the third party service provider on a three to five year basis. Such contracts seek to bring technical expertise that is not available to government, and to improve the management efficiency of the zone. Payment terms include fixed and success fees; the latter being fixed on the realisation of specific goals and targets, such as: sale or leasing of vacant space upon entry into contract, decrease of operating costs, improved maintenance and attractiveness of the zone. Revenues are either received by government, or perceived by the third party on behalf of government.



Leases: in this form of public-private partnership, the financial relationship is reversed. In the two above types, government, as the owner of the asset, pays for a service which is expected to benefit it. In leasing arrange, government is paid by a private sector concern for the right to ‘own’ the zone’s revenues, and operate and maintain it. Risk shifts further from government to the private sector, while government still owns the asset and remain responsible for capital investment. Leases are considered a useful way to improve on the management of industrial zones by linking the revenues generated with the quality and variety of services offered. This tends to be truer when there are competitive pressures – such as other industrial zones competing, or alternative forms of industrial land available. Leases are not

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appropriate when significant capital investment is required, unless investment is made by government, and the industrial zone is leases thereafter. 

Concessions: concession contracts are the last available option for private sector participation short of a sale of asset by government. In a concession arrangement, government retains the ownership of the industrial zone but privatises management, maintenance and capital investment. The objective of concessions is to bring all the above benefits of private sector participation, plus private capital to expand on existing infrastructure and turn the industrial zone into a high value asset. Concessions run for periods greater than 20 years, and up to 50 years. Concessionaires are expected to provide significant capital investment, improvement in the asset’s commercial and financial performance, service offering, visibility and reputation of the asset, and so on. These obligations are part of the concession contract.



BOT structures are the most recent form of public-private partnerships. Unlike the previous forms, BOTs start with private sector participation from inception. This usually includes participation in the concept, studies and in the financing of construction. However, BOTs are not fully private initiatives because they remain incepted by government and seek to achieve public good returns. Private sector participation is sought in order to decrease costs to government and improve success rate. There are two main sub-types:



Divesture or privatisation: government sells the ownership of the industrial zone to the private sector, either as a going concern or as non operating asset. Divesture involves complete disinvestment by government, and the buyer takes over all responsibility accruing to new ownership: capital investment, operation, maintenance, promotion and so forth. Privatisation of industrial zone can be done through competitive bidding or sale to a party soliciting acquisition.

SEZs in Africa Some African countries were amongst the earliest users of SEZs. This is notably the case with Liberia (1970) and Mauritius (1971). Yet, Africa’s relationship with SEZs is undoubtedly one of missed opportunities. While some 28 Sub-Saharan countries have developed SEZs57, few have had the kind of success with them that has been experienced in Asia, Latin America and the Middle East. Of all the developing regions, Africa is the one with the least number of SEZs, and the one where SEZs have probably played the smallest role in terms of static and dynamic impact.

Table 2: Regional distribution of SEZs in developing countries circa 2008 Number of countries with SEZs:

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Number of SEZs:

2,301

Regional breakdown: Asia-Pacific:

991

China:

187

Vietnam:

185

Americas:

540

Central and Eastern Europe, and Central Asia:

443

Middle East and North Africa:

213

Sub-Saharan Africa:

114

Source: FIAS, 2008

As is spectacularly illustrated by the pie-chart below, Sub-Saharan Africa operates 5 percent of all SEZs currently present in developing countries. This figure compares poorly with the 9 percent of the Middle East and North Africa, the 19 percent of developing Europe and Central Asia, the 24 percent of the Americas and the 43 percent of Asia.

Southern Africa has been notably absent in the SEZ landscape, to the exception of Namibia. There are projects in Botswana59, Mozambique and Zambia (see further below in the section). Other African countries too are attempting to launch SEZs or re-energise existing frameworks. Kenya is set to launch new SEZs in a bid to relaunch its export role and reenergise the poor performance of its EPZs (see below).60 Figure 3: Regional shares of SEZs amongst developing countries circa 2008

Asia-Pacific

Americas 43% Central and Eastern Europe, and Central Asia

19%

Middle East and North Africa Sub-Saharan Africa 24%

Source: FIAS, 200861

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According to FIAS, most of Africa’s SEZs are government-owned export processing zones, launched, paid for, and entirely managed by government. Private zones are found only in Ghana and Kenya. Most have been developed on the enclave model. Studies show that the static impact of Africa’s SEZ has been small. It is estimated that approximately 1 million direct jobs have been created, and possibly between 1 and 2 million indirect jobs. While this is not negligible in a continent characterised by high structural levels of unemployment, the contribution of African SEZs is largely insufficient to alleviate poverty, generate investment and exports, and act as an engine of growth.

There have been few studies of the cause of the overall failure of SEZs in Africa. The record seems to indicate that this failure stems from two main factors:62 

Reluctance by policy-makers to embrace SEZs as instruments of economic development because on the one hand of the critical view of SEZs in left-leaning economies, and on the other hand preference given to countrywide reform initiatives and liberalisation in countries implementing World Bank and IMF programmes.



Where SEZs have been developed, and with the notable exceptions of Mauritius and Madagascar, a preference for the EPZ-based enclave model with high levels of bureaucratic controls, relative small sizes and investment base, and narrow sets of economic objectives ( mostly static) have applied.

FIAS has categorised many of Sub-Saharan African SEZs as being ‘obstructed zones’, of which are ‘partial performers’ and ‘seriously obstructed zones’. The organisation lists countries with seriously obstructed zones as being Cote d’Ivoire, Kenya, Liberia, Namibia, and Senegal.63 There have been no global studies of Africa’s SEZs from a dynamic standpoint. The evidence suggests that existing SEZs have made little impact in terms of fostering changes in the economic structure of the host economies, encouraging private sector-led growth, fostering the growth of non-traditional manufacturing and services activities, and encouraging the rise of domestic firms supplying international commodity chains. As stated above, there seems to have been a strong policy bias against SEZs, and reluctance from policy-makers to create the appropriate regimes, financing, development and governance mechanisms.

However, the overwhelming international trend in new model SEZs, and the limited successes of economic reform in Africa are bringing changes to the policy landscape. International institutions like the World Bank, traditionally not in favour of special trade and investment regimes, are now more readily providing support for the creation of SEZs. There are a number of current projects across Sub-Saharan Africa that are either supported or facilitated by the World Bank and affiliate organisations such as the International Finance Corporation and FIAS.

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This support by the World Bank and its affiliates appears to represent somewhat of a ‘change of heart’ for the organisation. As demonstrated previously, the organisation was somewhat sceptical of SEZs, and notably of EPZs, notably in terms of its impact of overall reforms. It thus tended to discourage the use of EPZs where it could, and where it could not, it tended to keep them small and limited in scope. The focus was countrywide reforms. There seems to be a recognition that these countrywide reforms, notably in Sub-Saharan Africa, have borne very limited returns, and that the SEZ approach of poles of growth and reform may be more effective. New empirical demonstrations of the positive impact of SEZs on growth are no doubt helping. In parallel, ‘turnkey’ SEZ projects are making their appearance on a continent increasingly attractive to FDI and international trade. A spectacular example of this is provided by the announcement in 2006 by the People’s Republic of China that it was going to launch five special economic zones in Africa.64 These zones would be entirely funded, developed and operated by China. The announcement and subsequent developments have represented a unique approach to the SEZ concept, notably in the fact that China competitively assessed potential countries, and retained the ‘winners’ with much fanfare. It proposed that each of these SEZs would be specializing on specific activities or sectors. Initially, four countries were chosen: Egypt for a diversified zone, Mauritius for a trade zone65, Tanzania for a logistics zone, and Zambia for a mining zone. The fifth country has not been announced, but a veritable race between three West African countries – Cape Verde, Liberia, and Nigeria developed – for the right to host the last zone.

There is some reason for this. These zones are expected to become poles of Chinese investment in Africa and associated economic activities. They are expected to lead to the development of sector-based clusters around each of them, and to reinforce the host countries’ overall attractiveness to FDI. The investment commitments made by China are significant: 

It has expressed the intention to invest between USD 500 and 750 million in the Mauritius zone, spread over 220 ha, and to generate 13,000 jobs. However, these are to be mostly imported Chinese labourers to join the already 8,000 factory workers employed in the export processing zone. 40 Chinese companies are expected to locate. Work has begun on the recently named Mauritius Jinfei Economic Trade and Cooperation Zone.66



Investment in the Zambia zone is slated to be in hundreds of millions of USD. In addition, USD 800 million have been promised to Chinese companies as investment credits, and of these USD 200 million have been committed to a copper smelter. The objective is to create 30,000 jobs for nationals and Chinese workers.67

China is not the only contender this wave of projects financed by sovereign nations acting through state-controlled specialist companies. The UAE, who started developing their own special economic zones in the 1980s (with at first Jebel Ali Free Zone in Dubai), have become well established developer-owner-managers of SEZs. Emirati group Jafza International (Jebel

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Ali Free Zone Authority’s international division) is developing a 650 ha SEZ in Dakar near the future site of the new international airport.68 This project, entitle the Integrated Special Economic Zone is supposed to ultimately occupy 10,000 ha, providing space for business, residences and tourism. Jafza International is present in Libya, Tunisia and North America. It is unclear as yet how the current financial crisis in Dubai will impact JAFZA’s ability to continue with this project, notably after its recent downgrading and questions about its viability. 69

All in all, Sub-Sahara Africa looks set to take part in a new phase in the development of SEZs, and contradict the 2000 pronouncement by Tekere that “as second best development strategy EPZs have become irrelevant and outlived their viability given the acceptance of neo-liberal trade policies world-wide”.70 The figures and trends have largely invalidated this oft-made error.

While Africa is still behind the curve, it may catch on with the pioneering regions of Asia and Latin America as the number of projects increases and existing underperforming zones are being restructured, with private sector participation and the assistance of the donor community. As expressed by Watson, it is not too late for Africa.71

Part B: Case studies The Mauritius Export Processing Zone: catalyst in economic restructuring Mauritius is a telling example among many. It is worth discussing from a number of standpoints:   

The initial policy strategic context within which it appeared Its static and dynamic contribution to economic growth Its catalytic role in restructuring the Mauritian economy from a colonial monoculture system to a multi-sector open economy

Origins, context and early performance

The Mauritius Export Processing Zone (MEPZ) was created in 1971 as a typical enclave SEZ in an import-substituting economic strategic environment. The island had recently attained independence (1968), and had chosen to follow a social-democratic route to development, with a welfare state providing free education and health care, and acting as principal employer together with a private sector-owned sugar industry. The MEPZ was primarily designed as an ad hoc economic instrument dedicated to absorbing a large pool of surplus labour.72 Mauritius then had a structural unemployment level of over 20 percent, and the high population growth of the island was expected to result in a catastrophic rise in joblessness. This led to significant concerns about

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socioeconomic and political stability. In 1961, economist James Meade famously wrote the following pronouncement: Heavy population pressure must inevitably reduce real income per head below what it might otherwise be. That surely is bad enough in a community that is full of political conflict. But if in addition, in the absence of other remedies, it must lead either to unemployment (exacerbating the scramble for jobs between Indians and Creoles) or to even greater inequalities (stocking up still more the envy felt by the Indian and Creole underdog for the Franco-Mauritian top dog), the outlook for peaceful development is poor.73

The MEPZ allowed foreign firms to invest, employ Mauritians and export their production to European and American markets under the preferential trade agreements from which the island benefited as an ACP country. Initial investors were primarily Hong Kong firms seeking to bypass tariff and quotas imposed on them by the European and American markets. By the second half of the 1970s the possibility of investing in the garment and other light manufacturing activities attracted the attention of Mauritian sugar firms who had experience in foreign markets and had accumulated surplus capital thanks to the high sugar prices they could obtain on the European market â&#x20AC;&#x201C; again thanks to the island preferred ACP status. The Mauritian government permitted domestic investment, and joint ventures between Mauritian and Hong Kong companies.74

The MEPZ experienced rapid initial growth and rapidly began absorbing surplus labour. By 1977 it employed nearly 20,000 workers, mostly in garment manufacturing. One of the key characteristics of the zone started at that time: constraints by the small size of the economy and lack of opportunities in the import-substitution industries, domestic firms started investing in joint ventures with foreign firms. The success of the zone did not however change the countryâ&#x20AC;&#x2122;s economic strategy until the island experienced a grave crisis following a series of bad crops.75

Economic crisis and reorientation

In 1979 the island resorted to emergency assistance from the IMF, and embarked on a series of structural adjustments. From circa 1981, the economic strategy turned decisively away from import-substitution and became entirely export-oriented. From being an ad hoc addendum to the economy, the export processing zone became one of the pillars of an economic development strategy focused on promoting a diverse set of export sectors. The island entered its high growth period, with average growth rates being about 6 percent per annum. By 1985, the strategy was paying off, with the EPZ overtaking sugar as the primary export earner, and its employment figure reaching nearly 90,000 workers by 1989. Unemployment dropped from more than 14 percent in 1984 to less than 3 percent in 1989. At the same time, the level of wages stayed relatively low. In 1988 Mauritian labor costs were about 25 percent of those in Hong Kong and Singapore.76

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The government did not limit its strategy to sugar and the EPZ. It actively promoted parallel tracks of economic expansion. On one the one hand it pursued increased efficiency in established sectors like sugar (through consolidation of sugar estates and the closure of small mills, despite negative impact on employment) and the export processing zone, and on the other continued diversification to achieve balanced growth and reduce unemployment: 

In the late 1980s the island set up a free port (free trade zone) in the capital city and island’s commercial port, with a view to attracting international shipping and related commercial activities. The free port permits light processing, storing, packaging and related activities.77



At about the same time, Mauritius opened its offshore financial centre, and signed a large number of tax treaties with advanced and emerging economies. It offers services in banking, finance and insurance, and has become the main portal through which investment is made in India.



It increased the role of tourism in the economy by fostering investment in high end resorts focused on premium tourists.

The export processing zone peaked in the early 1990s and growth became distributed across the five pillars of the economy, all export-oriented: (i) sugar; (ii) the MEPZ; (iii) international trade and logistics; (iv) international banking and finance; and, (v) tourism.

Adaptation and resiliency

Despite the diversification of the economy, the MEPZ remains critical to it. It has been an undeniable success, though there have been problems. For instance, by 1985 foreign direct investment in the zone was decreasing. It was felt by the authorities that Mauritius needed to move away from the dominant garment industry because of increasing costs and diminishing competitiveness. An MEPZ diversification strategy was developed, and a training and productivity enhancement scheme was established. An attempt was made at attracting higher end manufacturing operations, notably in electrical and electronic industries. It largely failed. 78 As a result, the MEPZ remained focused on the garment industry, but developed a garment and textile cluster in which domestic capital played the crucial role. To compensate for increasing labour costs, Mauritius fostered the establishment of cooperative arrangements with Madagascar. EPZ firms in Mauritius invested in the EPZ of Madagascar, and located their labour-intensive production processes there. This was in part because labour costs in Madagascar were one third of those in Mauritius79, and because of its proximity by sea and air. Firms in Mauritius developed upstream and downstream activities (brand development, marketing, design, spinning, weaving, knitting, packaging, and quality control) which took place on the island. They expanded

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production operations in the rest of Africa (Lesotho, mainly) and Asia (Bangladesh, China, India).

Without a doubt, one of the single most important measures adopted by the government as regards the export processing zone was the authorisation granted to domestic firms to invest in the export processing zone. This measure, which was dedicated to limit capital flights allowed the export processing zone to play a decisive role in the development of the island.80

In this context, the EPZ played a crucial demonstration role from foreign to domestic firm. This took place under the form of technology transfers and transmission of skills and know-how, at both the intra-firm and the inter-firm levels. This demonstration effect led to the initiation of what Johansson calls the export supply response,81 where domestic firms were encouraged – directly through joint venture partnerships and indirectly by external demonstration – to enter the export market. In time, a core group of domestic firms was formed which itself led to further demonstration and spin off, resulting by the early 1990s in a highly successful export-oriented domestic industrial cluster.82 This cluster, either autonomously or in cooperation with international partner firms in the areas of production, design, marketing, logistics and financing, controlled significant parts of the production chains in which they were present. Over time, the cluster has consolidated, with footloose firms leaving and the number of firms and employments decreasing while achieving greater resiliency, notably in a highly competitive post-MFA world.83

The MEPZ, therefore, has constituted the environment within which the private sector has been able to efficiently use domestic factors to produce internationally competitive products, inserting itself within several international commodity chains.84 Through a number of institutional arrangements, private domestic concerns heavily invested in the MEPZ, introducing stability and creating the foundation for technology and knowledge internalisation.

This form of adaptation and resiliency allowed Mauritius to buck the trend in footloose manufacturing industries that tend to be typical of offshore manufacturing platforms. It allowed Mauritian firms, in a set of partnerships with external producers and brand leaders, to take greater control of international commodity chains and establish a specialized cluster spreading over the Indian Ocean and linking into Asia. In this, it was greatly aided by the island’s preferential access to key markets, notably through the AGOA and ACP frameworks: Mauritius benefited enormously from the policies of its trading partners who granted preferential access to Mauritius. An alternative way of stating this is that Mauritius benefited from the protectionist policies of the United States and EU in the sugar and textile and clothing sectors.85

Mauritius has taken a leading role in exporting to the EU and US markets, both directly and indirectly through its firms’ investments in the region’s leading textile countries. These firms

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directly sell to the large international garment and apparel buyers in an extremely competitive environment where the ability to produce and deliver within very short lead-times is critical for survival. Today, Mauritius is the worldâ&#x20AC;&#x2122;s second producer of knitwear, the third exporter for pure wool garment and the fourth supplier of T-shirts to the European market. The MEPZ employs 66,000 persons, is home to 500 firms, and exports USD between 1.2 billion and 1.5 billion per annum. 86 Of this, 80 percent is in the garment and textile cluster.

There undoubtedly are clouds on the horizon. Mauritius faces increasing competition from lower costs producing countries. It now faces harder competition on its key markets. There are limits to its ability to maintain mass production in the island, and stop-gap measures such as continued reliance on highly productive Chinese factory workers social, political and economic costs. While the MEPZ will remain one of the pillars of the economy, its relative contribution will continue to diminish and top Mauritian producers will continue internationalizing, with the focus of their activities in Mauritius being on capital intensive processes and industry services.

From export-led growth to the open economy A recent cost-benefit analysis by Sawkut, Vinesh and Sooraj (2009) 87 of the MEPZ using the enclave model developed by Warr found that it achieved negative economic returns over the period 1981-2002 (for which enough data is available to conduct rigorous enough analysis).

This analysis is the first empirical attempt at evaluating the economic returns of the MEPZ. It is a useful reminder that careful considerations should be given over what expenditures should or should not be made to generate a competitive environment. It is now well established that policymakers must seek to transfer most of the costs of developing and operating zones to the private sector. It also cautions against losing sight of hard economic facts in search of miraculous multiplier effects and dynamic benefits.

However, the analysis is significantly flawed in many of its assumptions and conclusions, notably about the opportunity cost of the zone, which it considers to have been high. The implication is that Mauritius should have applied a different growth strategy than the EPZ. Yet, and this is particular true in the 1970s and 1980s, there is little evidence that Mauritius had at its disposal a far more economical solution for its development conundrum â&#x20AC;&#x201C; conundrum made explicit by Meade. It is particularly questionable to conclude that the employment contribution was negative even when the unemployment rate was superior to 20 percent, no other economic sector could absorb this, and extensive social subsidisation was simply not affordable â&#x20AC;&#x201C; notably in the late 1970s-early 1980s when the newly elected left-wing government had no choice but to call the IMF and the World Bank to the rescue, bar economic meltdown.

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Assuming that the study is correct in its estimation of the costs and benefits streams that have been generated by the MEPZ, it nonetheless misses the key point of the Mauritian experience: the dynamic impact of the MEPZ on the island’s path from colonial mono-culture to a sustainable, diversified economy operating within the international economic system achieving high rankings in political, economic and social governance. The zone has played an immense role in the secular transformation of the island, attracting FDI, generating massive technology transfers, integrating Mauritius into global commodity chains, and leading the way toward the creation of a series of growth poles (the Freeport, the International Banking Center, the Integrated Resort Scheme, the Cybercity, the new SEZ, etc.) whose combined effect has been enormous.

Since independence Mauritius has experienced progressive economic liberalisation. It began its journey as a sovereign state with very few advantages and much vulnerability to domestic and external shocks. A product of the colonial project, it had no indigenous population by the time the Portuguese claimed it as theirs. After a short time as a Dutch colony, it was occupied by France and populated by a mix of colonists and slaves. During the 18th and 19th centuries, it acted as a stopover and naval base on the road to India, and was contested territory in the wars between Britain and France. It was then an open trade economy. After becoming British in 1815 it began producing sugar on an industrial scale for the Indian and British markets behind protective tariff barriers. At independence, little had changed, bar the fact that it had one of the fastest growing populations in the world, at about 2 per cent growth per annum.88 The island’s economy has had four main phases in its economic history since the mid 19th century:    

Export-oriented colonial monoculture: before the mid-1950s. A mix regime of import-substitution and export monoculture: between the mid-1950s and circa 1981. Export-led growth: between circa 1981 and circa 2005. Open economy: since circa 2005.

The new strategy represents a radical change to the previous approach of providing a set of sector-specific special regimes and associated infrastructure (the essence of special economic zones) while the domestic economy remained relatively protected by tariff barriers, quotas, restrictions on investment and activities, and a relatively high tax burden.

This latest evolution is turning Mauritius toward the Singapore and Hong-Kong model, where the entire island is a special economic zone providing a low tax environment and seeking to become a trade, investment, tourism and specialised manufacturing platform. The rise of the seafood cluster is an illustration of the success of that strategy, with an economic value added of

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over USD 320 million in 2007, represented by a combination of activities including licensing of fishing vessels, services to vessels, exports of unprocessed and processed fish, etc.89

The role of the state

The secular evolution of Mauritius does not represent a retreat of sovereignty in the face of global capitalism. The choice of the open economy model does not amount to an abandonment of the national interest in the face of a ‘transnational liberal ideology’. To the contrary, the state has created and remained in control of the conditions required to create a sustainable environment. As regards the export processing zone, the leadership exercised by the state was, and has remained, expressed in several ways: 

The state played a central role in initiating the MEPZ programme. Recognising the limited impact of the import substitution program, the state explored alternatives.90



The state created the necessary political conditions for the adoption of an economic instrument which was perceived as a threat by many. It was to the government to convince the powerful economic and political interests who opposed the project to accept it.91



In addition to its strategic role in initiating an early shift towards export-orientation and providing the political resources for the adoption of the export processing zone, it was to the state to implement the EPZ by creating the framework for its development and adaptation over the years.92

This ownership of the MEPZ by the state was and remains the expression of a succession of dedicated governments and increasingly professional and competent bureaucracies. The difficulties experienced in the late 1970s led to a number of proactive measures which were not merely equivalent to liberalisation but, on the contrary, resulted in increased state economic capacity. These measures included the creation within the Ministry of Industry of an Industrial Coordination Unit in charge of simplifying the investment process in the EPZ and, later, the institution of the Mauritius Export Development and Investment Authority (MEDIA), a parastatal organisation whose mission was to promote and direct the development of the EPZ, replaced later by the Board of Investment.93 Several authors94 have suggested that special economic zones require extensive state involvement through the creation of new regulatory regimes and the bureaucratic structures required to manage these. Far from leading to a reduction in the role of the state, the opposite occurs. In the case of the Mauritius, some argue that while the more ‘socialist’ Ramgoolam government of the 1970s was keen on leaving “the choice of industry to the imagination of the private sector, limiting Government's role to setting the legal and policy environment”, “the more

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‘conservative’ Jugnauth government of the 1980s and mid-1990s was willing to take initiatives in pointing directions for the private sector”.95

Overall, therefore, it is possible to argue that Mauritius applied an adaptation of the strategy implemented by the Asian newly industrialising countries (NICs) before it, and that the MEPZ and the special regimes that were successively developed to complement it constituted the basic architecture of that strategy. Kearney speaks of the Mauritius experience, and particularly of the role of the government, as representing a replication of a number of newly industrializing countries’ policy characteristics, notably in the domain of education, infrastructures, labor management, savings and investment, and entrepreneurial development. He characterises Mauritian policy-makers as “pragmatic, bold, innovative, and closely attentive to the NIC experience”, and the government itself as being “the leading entrepreneur”. To Meisenhelder 96, the export-oriented strategy of the 1980s represented a purely domestic reform endeavor expressing the existence of a developmental state, characterised by “a capable and relatively autonomous state bureaucracy.”97

In this regard, the new Chinese SEZ brings interesting questions, and is fuelling serious debates in Mauritius, both in the public sphere and in Parliament. Many in the island and many observers question whether the financing, development and ownership model – of which very little has been publicly shared by the contracting parties – does not represent a departure from the intensely sovereign approach Mauritius has managed its affairs. Some have expressed that the project represents a neo-colonial attempt by China at using Mauritius as a bridgehead into Africa, and will form a concession not unlike those imposed on China by Western powers and Japan at the end of the 19th Century.98 The economic benefits of the project are being disputed because the zone will be owned by Chinese companies, constructed by Chinese companies, will provide an operating environment where mostly Chinese companies invest in, and will employ Chinese labour.

Malaysia: EPZs, Export-oriented Growth and Economic Redistribution Malaysia is often cited as another example in the successful use of SEZs in the creation of economic growth. The country offers an especially interesting perspective into the use of export processing zones for the purpose of creating an internationally competitive non-traditional industrial cluster. It also has relevance to South Africa’s socio-economic context and its need to redress economic imbalances between its ethnic groups.

Policy context

Like many newly independent countries of the 1960s, Malaysia started its drive toward greater socio-economic development with an import-substitution strategy focused on creating an

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industrial sector serving the domestic market. As with most such countries, the strategy failed to achieve much of its objectives, and the country faced a significant unemployment problem, insufficient capital investment, and low growth.99

Concerned about poor economic performance and continued ethnic tensions, notably after May 13 1969 riots in which an estimated 2,000 people were killed, the Malaysian government changed course, adopting the New Economic Policy. This was edicted by the National Operations Council, an emergency government which acted between 1969 and 1971 – during which time Parliament was suspended. The New Economic Policy became the mainstay of the country’s approach to socio-economic development until 1990.100 It emphasised the relationship between economic growth and income redistribution. The focus on income redistribution was rendered imperative by the highly skewed ethnic situation, with the Chinese and Indian minorities and foreign interests controlling most of the economy. Ethnic Malays, or Bumiputra, owned about 2.4 percent of the economy in 1970.

The initial objective of the NEP was to achieve redistribution from a ratio of 2.4 percent to the Malays, 33 percent to ‘other Malays’ (Chinese and Indians), and 63 percent ‘foreigners’ to respectively 30:40:30.101 The strategy chosen was that of the ‘expanding pie’: rather than transferring assets owned by minorities and foreign interests, the government intended to pursue overall national wealth redistribution through increasing the size of the economy and allocating preferences to the ethnic Malays through affirmative action programmes. In theory, no ethnic and business groups would be made worse off.102

Industrial development was chosen to provide the necessary economic growth required for the strategy to work. Unlike the previous import-substitution strategy, this industrialisation process would be based on the experience of the successful late-industrialisers of the time, and principally Japan. This meant turning Malaysia into an export-oriented economy. Export Processing Zones were to play a leading role in fulfilling the strategy.

Initial export processing zones drive: dual-track strategy

The regulatory framework for attracting investment and fostering industrial development evolved rapidly in the late 1960s-early 1970s. In 1968, the Investment Incentives Act provided the initial legislation in a fairly liberal manner, without any restrictions of ownership. 103 The first EPZ began operations in 1972 near Penang Island. It experienced rapid success in terms of attracting foreign investment geared toward exports. American investors, particularly, responded to the environment offered by locating manufacturing operations in the labour-intensive electronics assembly industry.104

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Changes were brought to the regulatory environment in 1975 with the promulgation of the Investment Coordination Act. This legislation marked a departure from the fairly liberal investment regime by introducing equity restrictions, in keeping with the objectives of the NEP. The Act introduced a licensing requirement for manufacturing activities as well as capital ownership requirements for ventures with an investment greater than RM 100,000: Malaysianowned firms were obligated to provide at least 30 percent of the capital to Bumiputra interests; foreign-owned firms were obligated to provide at least 70 percent of their capital to Malaysian interests, of which 30 percent must be Bumiputra.105

Legislation provided exception for foreign-owned firms: these were permitted 100 percent foreign equity provided they exported at least 80 percent of their production and sourced some of their production input on the domestic market. EPZs were geared to attract these firms.

The ICA thus represented an increase in state intervention toward achieving redistribution through growth by mandating equity distribution in existing and new businesses. The domestic investment and operating environment became increasingly restrictive, and the government compensated this by creating a liberal EPZ environment allowing foreign firms to freely investment and operate in the export-oriented sector of the economy.

Malaysia adopted a dual-track economic development strategy, with a relatively protectionism domestic economy working in conjunction with an enclave export sector. The strategy resulted in ambivalent phenomena:

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ď&#x201A;ˇ

The EPZ sector experienced rapid continuous growth through the 1970s and 1980s, attracting foreign firms and resulting in the creation of an industrial cluster around the electronics assembly industry. Exports increased dramatically. So did manufacturing employment and the share of the sector in the economy. However, net exports were of only 10 percent as all production input were imported, and employment was in low skilled assembly operations.

ď&#x201A;ˇ

The restrictive investment regime in the domestic economy resulted in significant capital flight from the Chinese community and foreign investors targeted by the ICA; a total of about USD 12 billion between 1975 and 1984.

ď&#x201A;ˇ

Redistribution toward the ethnic Malays failed to progress as expected, with the majority of new business licences awarded to minority businesses (with Bumiputra minority interests) and to foreign companies. Bumiputra projects, companies created by ethnic Malays, represented on average less than 20 percent of all industrial projects for the period 1975-1980.106

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The 1980s heavy industry drive

In the face of the limitations of the dual-track approach, under the prime ministership of Mahathir, Malaysia embarked on a heavy industrialisation strategy. The objective was to complement the export-oriented sector with a domestic heavy industrial base focused on continuous growth and achieving the objectives of redistribution. The programme was to be state-driven, and government created the Heavy Industries Corporation of Malaysia (HICOM) in 1981. This drive represented an increase in the dual-track approach, with the newly set up heavy industries being highly protected from external competitors and benefiting from large public investment, mostly through external borrowing.

The programme failed to achieve most of its objectives. Protectionism increased significantly. For instance, the effective rate of protection for the iron and steel industry rose from 28 percent in 1969 to 188 percent in 1987. Protection was so high for the motor vehicle industry that this industry was not viable without it. Despite this, domestic demand was low, and external demand was insignificant. The countryâ&#x20AC;&#x2122;s external debt increased from 9.5 percent of GNP in 1980 to about 42.4 percent in 1986.107

In the meanwhile, the export processing zone sector continued to perform well, and in the face of pressures, government changed track again.

The second export-oriented drive

In 1985, faced with adverse conditions, the government changed tack again, seeking to better incorporate the lessons learnt from the export processing zone sector and improve the competitiveness of the heavy industries sector. In parallel, government needed to improve macro-economic performance and decrease the national debt. The economy was progressively liberalised within an industrial development framework dedicated to achieving greater and more sustainable growth. In 1986, a ten-year Industrial Master Plan (IMP) was put in place. Rather than attempt to go against the countryâ&#x20AC;&#x2122;s factor endowment, industrialisation was to be achieved through strengthening that endowment. Public enterprises were fully or partially privatised. Incentives were put in place to attract private sector investment in the heavy industries sector, notably in resource-based industries where the country had a competitive advantage and in non resource-based industries where it also had an advantage. Trade and investment rules were substantially opened.

A Promotion of Investments Act replaced the 1968 Investment Incentives Act in 1986, with a set of targeted incentives aimed at achieving the above new strategy. Incentives were dedicated to support the IMP, and to encourage the creation of small and medium enterprises capable of entering international and domestic commodity chains in the existing industrial sectors. Business

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licensing requirements and ceilings were significantly relaxed. Investment in labour force training was made through vocational training schemes. The labour market was liberalised. Research and development were targeted for investment.

The strategy paid off, with Malaysia experiencing continued high growth from the mid-1980s onward and becoming an attractive investment destination for manufacturing companies from Japan, Taiwan, the USA and other OEM countries.

Economic Footprint

Malaysia currently employs eleven export processing zones, of which seven are dedicated to the electronics industry. Data on Malaysia’s EPZ is scarce, and often out of date.

The EPZs experienced rapid growth, at 13.3 percent per annum in the 1970s. By 1995 over 400 foreign firms had been attracted to the country’s EPZ.108

In terms of employment, the best figure obtained dates back to 2003. It shows that the EPZs employed approximately 1 million, of which a third in the electrical and electronics industries, created through the country’s EPZs, followed by slightly less than 100,000 in the textiles industry, about 80,000 in the wood products industries, and then around 55,000 in the food manufacturing and rubber industries each. Other industries employed the balance of workers. Similarly, the electronics industry has represented the lion’s share in economic activities. In 1990 manufacturing accounted for about 27 percent of GDP, about 59 percent of total exports, and about 20 percent of total employment.109 The EPZs’ share of exports went from 1 percent in 1972 to 57.5 in 1990. Electronics took a large part of that. In the same period, FDI increased from USD 94 million to over USD 4 billion.110 Between 1996 and 2000 manufacturing exports doubled, and the share of the electronics industry in those exports continued rising, to 75.5 percent (from 59 percent in 1990).

The electronics industry dominates FDI, varying from 15 percent (the lowest figure between 1996 and 2002, and a product of the Asian crisis in 1998) to 54 percent of total national FDI. The average, 1998 excluded, is 44 percent. Most of that investment has originated from the USA, followed by Japan, Singapore and Germany.

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Through this, Malaysia achieved a remarkable feat: having no electronics industry before the 1970s, it created a world class industry in about 20 years, and by 1995 exported nearly 10 percent of the worldâ&#x20AC;&#x2122;s semiconductors exports.111 Synthesis: the role of SEZs in Malaysiaâ&#x20AC;&#x2122;s economy restructuring

Malaysia offers another example of a strategy of economic diversification through the use of special economic zones in the context of a heterodox growth model. Through its EPZs, the countries manage to generate, ex nihilo, an electronics industry which absorbed significant surplus labour, generated large exports and attracted large amounts of foreign direct investment. While this export sector grew, the domestic economy underwent significant changes in economic strategy, with a focus on redistribution and welfare economics. Over time, the export sector represented by the EPZs progressively acted as a catalyst for the rest of the economy, which was opened and more fully integrated in the international system. From a polico-economic standpoint, the EPZs bought time to the consecutive governments, and allowed the emergence of a Bumiputra domestic entrepreneurial class.

The Aqaba Special Economic Zone: an approach to PPP The Aqaba Special Economic Zone in Jordan represents an interesting approach to public-private partnership for the financing, development and management of economic infrastructure. The Aqaba Special Economic Zone corresponds to the Wide Area SEZ type.

Economic and governance rationale for the Aqaba Special Economic Zone Whilst the port of Aqaba is Jordanâ&#x20AC;&#x2122;s only seaport, the port, the city and the region have long lagged behind the rest of the country, and have failed to play the economic role they could play given their assets and location. The Government of Jordan decided in 1998 to turn the Aqaba region into a special economic zone. Studies were started in 1999 with funding from the World Bank.

The principle retained for the creation, development and management of the zone was that it would be done through extensive public-private cooperation. Government would provide the strategic vision and framework, establish the zone through an act of Parliament, set the regulatory framework, and contract out key elements of planning, financing and implementation.112

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Governance framework and development principles

In August 2000 the draft law for the Aqaba Special Economic Zone (ASEZ) was voted by Parliament. The ASEZ began operating the following year. The law, entitled Law No.32, The Aqaba Special Economic Zone Law, contains the following principal provisions:113 

It established the Aqaba Special Economic Zone Authority, or ASEZA, a body directly affiliated with the Prime Minister having financial and administrative autonomy, and authorised to acquire assets, accept grants and donations, and transact in accordance with objective of the SEZ, which were defined in the law.



ASEZA replaced the Aqaba Regional Authority and the Aqaba Municipality, inheriting their attributions, assets, employees and obligations.



Facilities, assets and employees belonging to the Jordan Free Zones Corporation within the perimeter of the SEZ were transferred to the Authority.



The Authority was tasked with administering the zone, develop the plans and programmes required for its development, prepare all regulations pertaining to investment, administer all application processes for investment and incentives, and promote the zone.



It was also tasked with regulating economic activities within the zone and issuing the permits and certificates required by law, regulate zoning, manage municipal affairs, protect and manage the environment, control imports and exports within the zone and manage customs procedures and matters, collect taxes, fees, fines and service charges as applying inside the zone, and manage labour affairs.

In total, the Board promulgated nearly 50 bylaws, regulations and memoranda of understanding with various ministries.114

According to the regulations created, the Authority can contract a third party to develop and/or manage the zone or parts of it. The regulation frames the terms on which the development company will be contracted, how it will formulate development plans, borrow funds to finance development, hire experts, purchase, own, sell, lease and rent property, and how it will promote the zone.

The regulations aims at creating a liberal economic environment that will greatly facilitate business investment and operation, while ensuring that environmental protection, public health, public safety, and so on, are provided for.115

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In fulfilment of Regulation No. 6, ASEZA launched the Aqaba Development Corporation in 2004 (ADC). It is jointly owned by ASEZA and the government of Jordan. The Corporation inherited the zone’s key economic infrastructure, key land assets, and the rights to develop and manage these assets. This includes the right to contract third party to develop and/or manage them. ADC is tasked with implementing the Authority’s master plan. The Corporation’s mandate stipulates that it must prioritise public-private partnerships in its projects, and ensure that private sector participation is obtained in the development and management of its key assets, port and airport included. The Corporation operates as a zone entity and is a commercial venture. ADC owns the port and airport.116

Investment record

The zone had obtained investment commitments of approximately USD 6 billion by 2006. According to ASEZA, this investment commitment represents a clear manifestation of success, as the figure was targeted for realisation only in 2020. Accordingly, the Authority has set an additional target of USD 3 billion to be committed by 2015.

ASEZA states that the number of companies registering to operate in the zone has steadily increased, with 224 companies doing so in 2006, compared with 199 in 2005. In 2006, the registered capital invested amounted to approximately USD 355 million. ASEZA also states that the current project portfolio includes development of over 3.7 million m2 of land.

Current projects managed by the Corporation are categorised as commercial, transport and infrastructure and enablers. Commercial projects include real estate operations in housing, exhibition and trade fairs, and pre-built warehousing space. Transport and infrastructure projects include an oil terminal, a phosphate terminal, and a container complex. Enablers include an international school, a hospitality college, and urban development.117 Industrial estates in the ASEZ – the case of the Aqaba International Industrial Estate

Today, the ASEZ hosts and operates two industrial estates, as they are called: 

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The first industrial estate was initially launched as a project with international donor support in 1999. It is called the Aqaba International Industrial Estate, and provides serviced land to light manufacturing, logistics and business services. The zone is owned by the Jordan Industrial Estate Corporation, but is operated under concession

Claude Baissac

by a private international joint venture between American engineering firm Parsons Brinkerhoff and Turkish construction company SUTA. ď&#x201A;ˇ

The second industrial estate was recently launched by ADC in a joint venture with the National Real Estate Company of Kuwait. Called the ADC Warehousing and Industries park, the property is owned and operated by the two companies, and is located near the port.

Aqaba International Industrial Estate: ownership, investment and PPP118

The Aqaba International Industrial Estate project was launched in 1999 to provide serviced land to a host of activities, including light manufacturing, logistics and business services. The industrial zone was developed as a key component of the special economic zone, and one of its pilot projects. It is located north of the city, near Aqabaâ&#x20AC;&#x2122;s international airport, and occupies a site of 275 hectares.

The zone belongs to the Jordan Industrial Estate Corporation, who bought the land before 1999 for USD 1 per m2, or a total of USD 2,750,000.

The JIEC was created following publication of the 1985 Jordan Industrial Estates Law. It is mandated with planning, establishing and managing all industrial zones. JIEC is a corporate entity with financial and administrative autonomy owned by the Government of Jordan, the Housing Bank, and the Industrial Development Bank. According to the industrial estate law, JIEC may own and buy lands for the establishment of zones and may manage them. The law gives JIEC the planning authority that usually devolves to regions and municipalities. It also allows JIEC to contract experts and consultants to assist in the performance of its duties, and to contract with third parties to develop and manage zones it owns.

AIIE represents a pioneering attempt at developing an industrial zone through a public-private partnership format.

Under the terms of the partnership, USAID provided the funding for some offsite and the entire onsite infrastructure for the 1st phase of the zone. A total of 57 hectares were thus developed. Offsite infrastructure work included rebuilding a main highway running along the estate, which benefited the northern part of Aqaba, and building a large electricity substation. The onsite infrastructure work paid by USAID included land preparation and levelling, the laying of streets, water pipes and drainage, electric lines and so on. It also included one office building and a couple demonstration buildings. USAID invested USD 12 million for Phase 1 onsite.

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While construction was taking place, JIEC tendered for a 30 year concession contract for the management of Phase 1. The terms of the concession included: 

The obligation for the concessionaire to sell or lease all serviced land within the first 20 years of the concession contract.



The obligation to run and maintain Phase 1 for the duration of the contract.



The right for the concessionaire to add another 110 ha for additional development during the 30 year concession, on performance for Phase 1.



The right to renew the concession on conclusion of contract.

Furthermore: 

Land sold belongs to the buyers.



On completion of the concession, and assuming that the concession is not renewed, the common infrastructure (access, roads, office block, and so on) reverts to JIEC, as well as all land not sold.

PBI Aqaba Industrial Estate: the concession story

Parsons Brinkerhoff and SUTA won the tender in 2003, and created PBI Aqaba Industrial Estate (PBIA) as a zone enterprise to manage the concession. The company signed the right to develop the additional 110 ha as an addendum to the concession contract. It has since then exercised this right, and now controls approximately 160 ha, comprising Phase 1 and 2 phase covering part of the 110 ha. 119

Accordingly, Aqaba International Industrial Estate is the name of the entire zone (275 ha), and PBI Aqaba Industrial Estate is that of the concession (160 ha).

In the terms of the concession, JIEC does not have any other rights than those of a landowner and revenue sharing partner. It does not have a say in the management of the zone, beyond what is in the contract. It does not sit on the board of the PBIA, and does not participate in the promotion of the zone, the selection of tenants, and any other aspect of the operation of the zone. Management, promotion, sale and leasing, and maintenance of the zone are the sole responsibility of PBIA. In addition, they provide consulting services on the design and construction of buildings on commercial terms, and can act as project managers.

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JIEC however benefits from an advantageous revenue sharing model: 

For Phase 1, it receives on average 70 percent of the sales or lease revenue generated by PBI Aqaba Industrial Estate, and the latter receives 30 percent.



For Phase 2, the ratios are reversed as PBIA is solely in charge of developing the zone. No external funding has been made available, and PBIA has proceeded on pure commercial risk basis.

Average price per m2 of developed land sold, without buildings, has been USD 40 per m2. This translates in approximately USD28 per m2 of revenue for JIEC for Phase 1.

In addition to proceeds from the sale and leasing of land, PBIA charges zone users USD 50 per m2 per year for management and maintenance. This rate applies to fully built and operating businesses, and PBIA charges less for empty plots, plots in construction, and not yet operating businesses. JIEC does not receive any portion of this fee.

Insofar as Phase 1 is concerned, PBIA initially intended to start selling land from 2003 on, and planned to have sold all plots in approximately 5 years. A dispute over the statutes of JIEC inside the special economic zone, between JIEC, the Government and ASEZA, led to a 3 year delay in the initiation of land sales. These started in 2006, and by 2009 all plots of Phase 1 had been sold or leased. The proportion was 55 properties sold to only 5 leased.

The total value of land sold for Phase 1 was USD 25 million. Per the revenue sharing agreement, JIEC received about USD 14 million. It thus has made a significant ‘profit’ on the operation since it purchased the full 275 ha for USD 2.75 million. It is still to receive 30 percent of the total sales price for the additional 110 ha of Phase 2. Assuming a stable price of USD 40 per m2, a reasonable assumption in the current economic environment, JIEC may receive an additional USD 11.5 million. This does not take into account the remaining 100 ha or so that are not part of the concession and are also property of JIEC. It also does not take into account any future revenue JIEC may receive once the concession has been concluded and it recovers the right to manage the estate and receive the management and maintenance fee.

Phase 2 has been structured differently from Phase 1. Unlike Phase 1, no external financing is available, and JIEC declined to fund the infrastructure, in part or in whole. Accordingly, the concession contract was amended to give PBIA the right to develop the land and retain 70 percent of the revenues from land sales and leases. PBIA’s approach to developing Phase 2 has been based on the following principles:

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Self-financing, where the capital costs of developing Phase 2 have to originate from the revenues from Phase 1, minus the 70 percent share of JIEC.



Incremental development of Phase 2, with tranches of about 20 ha each being developed then commercialised. Tranche 1 of Phase 2 has now been developed and has been sold 50 percent, and Tranche 2 is now under development.

Furthermore, PBIA launched a promotion and sales strategy based on a sequenced plan: 

First, to populate Phase 1 with small and medium size Jordanian and regional companies in order to increase the visibility and credibility of the estate.



Second, to leverage this with larger international companies.

The delay in selling land in 2003-2005 cost PBIA money. Between 2006 and 2008 it recovered its investment (staffing, management, maintenance, operating costs, promotions and sales, etc.) and turned a profit, selling around 15 properties per year. It managed to break-even in 2009, and is expected to see a recovery in sales and its results in 2010.

PBIA intends to have sold all 160 ha by 2014. It will then be obligated to manage and maintain the zone for the remainder of the concession. It is considering contracting this obligation to a Jordanian property management company.

Part C: South Africa’s Industrial Development Zones programme Programme overview South Africa initiated its Industrial Development Zones Programme (IDZs) in order to support the country’s economic growth through the creation of an environment for both foreign and South African enterprises. The programme has been primarily geared toward export-oriented manufacturing industries, with a focus on diversification.

The IDZ programme is primarily intended to achieve three key objectives:   

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To boost the country’s international competitiveness. To establish international attractiveness for increased FDI and investment. To create industrial synergies by encouraging cluster developments.120

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The programme has received significant public attention. However, there is a dearth of analysis on the programmeâ&#x20AC;&#x2122;s economic impact and effectiveness. As result, data and policy reviews are rare, and providing a comprehensive view on the programme is currently not feasible.

This section thus provides a high-level view of the IDZ programme, its key components, and attempts an initial evaluation of its performance.

IDZs defined

An IDZ is a purpose-built industrial estate linked to an international seaport or airport that leverages fixed direct investments in value added and export-oriented manufacturing industries. IDZ are intended to promote the competitiveness of the manufacturing sector and to encourage beneficiation of locally available resources. The programme is intended to provide facilities and services tailored for export-oriented industries.

Government licenses operators to develop and run selected IDZs. These operators provide enterprise support measures, minimise red tape and provide efficient services to all enterprises within the IDZ.121 The IDZ strategy forms an important and leading part of governmentâ&#x20AC;&#x2122;s strategy to attract increased foreign investment and economic growth. This is done through incentive structures and grants to boost economic attractiveness, in order to attract and retain both foreign and local investment.122 The attractiveness of IDZs is primarily due to their close association and location to ports or airports, good infrastructure and support, and duty free and tax free incentives on production related raw materials and inputs, all done in order to enhance productivity and the export orientation of the zones. This is a recent phenomenon in South Africa, aimed to increase exports, economic growth and enhance competitiveness.123 South Africa offers a number of fiscal incentives in their IDZ package, including a six year tax holiday, accelerated depreciation (allowance to write off manufacturing asset over 4 years, 40 percent for cost in the first year and thereafter 20 percent), duty free imports and VAT exemptions.

The IDZ programme provides a platform for regulation, and monitoring of the establishment, development and management of IDZ projects. Generally an IDZ consists of a Customs Controlled Area (CCA) with dedicated SARS officials to provide support with customs and VAT requirements, an industries and services area within the borders of the IDZ and world class infrastructure linked to an international port of entry. The characteristics of a CCA include duty rebate and VAT exemption on imports of production-related raw materials, including machinery and assets, to be used in production with the aim of exporting the finished products, VAT suspension under specific conditions for supplies procured in South Africa, and efficient and expedited Customs administration.124

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Key regulatory and legislative aspects

The IDZ is implemented as a programme under section 10 of the Manufacturing Development Act No. 187 of 1993. The programme is outlined in the Regional Industrial Development Amendment Act, (No 22 of 1998), in the Government Notice No. 1224 (December 2000), amended by Government Notice No. R.1065, in Regulation Gazette No. 8569, and published in Government Gazette No. 24320 of 27 October 2006. The Customs and Excise Act No. 91 (1964) Section 21A provides for the administration of the CCA within an IDZ. The Value Added Tax Act No. 89 (1991) provides for certain exemptions or zero rating of VAT, under specific conditions, for CCA Enterprises. The guidelines for participation in the programme are outlined in the Industrial Development Zone Programme: Guidelinesâ&#x20AC;&#x2122; published in September 2008.

The IDZ Programme is administered by The Enterprise Organisation Division (TEO).The mandate of TEO is to stimulate and facilitate the development of sustainable, competitive enterprises by efficiently providing effective and accessible supply-side measures such as cash, cost sharing grants and tax allowances. The main aim of the incentive schemes is to promote investment, enterprise development, and competitiveness and export opportunities for local and foreign enterprises.125

Customs controlled area (CCA)

An IDZ contains a controlled Customs Controlled Area (CCA) or Customs Secured Area (CSA), which is exempt from duties, VAT and import duty on machinery and assets. This area allows for duty suspension for the production of exports and vat suspension for supplies procured in South Africa. IDZs can contain one or multiple CCAs. These are a specific area within an IDZ, designated by the South African Revenue Service (SARS) Commissioner in concurrence with the Director-General of the Department of Trade and Industry (Dti). This is an area controlled by the Commissioner and by SARS, while the rest of the IDZ is designated and controlled by the Minister of the Dti and the IDZ operators, in terms of the Manufacturing Development Act of 1993. The CCA is a more heavily tax controlled and orientated area, where customs and tax issues are regulated and managed, while the rest of the IDZ location dedicated to industrial development and production. SARS offer several incentives to CCA enterprises, such as relief from customs duties at time of importation into a CCA on raw material for manufacture or machinery used in the manufacturing process. It also aims to offer simplified customs procedures, as opposed to normal customs regulations, particularly in clearance of goods for importation, exportation and transit. They offer fiscal incentives on goods when goods are imported for storage, or raw material imported for manufacture, and they provide subsidised infrastructure to companies invested in the area. This includes benefits such as no import duties payable on goods imported for use in the construction and maintenance of the infrastructure of a CCA in an IDZ, and no Value-Added Tax shall be payable under certain conditions.126

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In terms of the Customs and Excise Act the following activities are allowed in a CCA: 

production or manufacture of any goods (other than goods liable to any excise duty, fuel levy or environmental levy) produced or manufactured in accordance with certain provisions laid out by SARS



production or manufacture of any goods liable to excise duty, fuel levy or environmental levy, be removed to and so used in a licensed customs and excise manufacturing warehouse in accordance with the provisions of the Act



storage of imported goods for export, in the same condition as imported or to undergo operations necessary for their preservation or to improve the packaging or marketable quantity or quality or to prepare them for shipment (such as break bulk, grouping of packages, sorting and grading or repacking) before exportation.127

Investment and operating incentives

Incentives are offered through a number of parallel programmes managed by DTI. These incentives programmes are not specific to IDZs, and apply to qualifying enterprises nationally. It is understood that companies may only apply to select incentive programmes:128

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

Small Medium Enterprise Development Programme (SMEDP).



Skills Support Programme (SSP), which covers 50% of training costs.

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Critical Infrastructure Programme (CIP) that covers between 10 to 30% of necessary infrastructure.



Foreign Investment Grant (FIG) compensates foreign companies for transporting new machinery to South Africa.



Strategic Investment Programme (SIP) which is presently being reformulated.

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The Manufacturing Investment Programme (MIP) provides a tax-free cash grant up to USD 2 million per annum, for two years on qualifying assets up to approximately USD 25 million.



Industrial Policy Projects aim to promote local and foreign direct investment in industrial policy projects in South Africa, by offering various tax breaks and incentive packages.



The Export Marketing and Investment Assistance (EMIA) schemes aim to assist exporters with primary market research.

Claude Baissac 

Developmental Electricity Pricing Programme (DEPP): the main objective is to contribute to economic growth and employment by attracting industrial investment by providing them with competitive internal electricity prices.



National Industrial Policy Framework (NIPF): this was launched in August 2007 and identifies sectors which have been earmarked for support. These include: capital/transport equipment and metal fabrication; automotives and components; chemicals, plastic fabrication and pharmaceuticals; and Forestry, pulp and paper, and furniture.



The Sector Partnership Fund (SPF) provides financial assistance to partnerships of firms in the manufacturing and agro-processing industries, to define and implement collaborative projects related to production and marketing that will enhance their productivity and international competitiveness. The SPF offers partnerships at 65:35 non-refundable cost-sharing grants.



There are several sector-specific schemes such as the Motor Industry Development Programme (MIDP), Finance for Expansion of Manufacturing and the Duty Credit Certificate Scheme (DCCS) for exporters of textiles. The Motor Industry Development Programme (MIDP) is a voluntary incentive scheme designed to save motor vehicle industry participants money, in the form of a reduction on import duties payable to SARS Customs. This programme is to be replaced in full by the automotive production and development programme (APDP) on 1 January 2013. The Automotive Investment Assistance (AIA), which will be valid from June 2009.

In addition to these industrial development support programmes, government provides investors with the tax incentives. These are not IDZ-specific either, and apply to qualifying enterprises nationwide:

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Preferential Corporate Tax Rate for Small Business: to encourage small and medium business development in South Africa.



Infrastructural Development: offers a tax deduction is granted in respect of any new or unused affected assets owned by the taxpayer.

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Public Private Partnerships which aims to encourage the private sector to invest in infrastructure in partnership with the public sector, by offering grants and tax exemptions.



Value Added Tax (VAT) Export Incentive Scheme encourages exports from, and investment in South Africa. This is applicable for all exporters, registered as VAT vendors in South Africa. Benefits are diverse, including that a vendor may supply movable goods at the zero rate, where the goods are consigned or delivered to an address outside South Africa.

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Programme funding and investment According to the DTI, government has contributed all funding to the IDZ programme so far.129 This includes funding for the IDZs per se (development, construction and operation), the DTI itself, the incentives provided and the offsite infrastructure (such as the port of Ngqura). Government funding is allocated through the DTI, the relevant infrastructure authorities and parastatals (such as Transnet), the provinces and the municipalities.

The figure provided by DTI is of R 2.8 billion (USD 350 million) invested in three IDZs (Coega, East London and Richards Bay) between 2002 and 2009. The figure is only indicative of capital investments committed so far by the DTI, and excludes commitments by the provinces, the municipalities and other ministries and parastatals.130

There does not exist any global estimation of investment so far, nor is there any projected global estimation of future investment and operating expenses. Accordingly, the above figure is likely to represent only a small fraction of the total investment made so far. Total invested is much larger, as indicated by the figures available on Coega. There, government has provided R 8 billion (approximately USD 1 billion) for the project so far, including R 3.1 billion (USD 400 million) for the new port and R 2 billion (USD 250 million) for infrastructure in the IDZ (DTI, province and local government). State electricity company Eskom invested R2.1 billion (USD 250 million) to upgrade the power supply. State rail company Spoornet also invested R500 million (USD 60 million) in upgrading rail facilities.131

To these figures must be added the unknown cost of the investment incentives offered. Overall, the programme cost is likely to have been very high, and greater than R 10 billion.

Case study: Coega IDZ Configuration and investment profile The Coega site, near Port Elizabeth, is South Africaâ&#x20AC;&#x2122;s largest IDZ, and is the single largest infrastructure development project in the country since 1994. The multibillion-rand industrial park is adjacent to Ngqura, the new dedicated deep-water port with purpose-built container, bulk and break-bulk terminals. Coega is located in the Nelson Mandela Metropolitan Municipality and is being developed by the Coega Development Corporation (CDC). Although the CDC is a private company, national and provincial governments are the only shareholders. Government has provided R 7.7 billion (approximately USD 1 billion) for the project so far, including R 3.1 billion (USD 400 million) for the new port and R 2 billion (USD 250 million) for infrastructure in the IDZ. State electricity company Eskom invested R2.1 billion (USD 250 million) to upgrade

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the power supply. State rail company Spoornet also invested R500 million (USD 60 million) in upgrading rail facilities.132

The Coega project has two integrated components: (i) the land side being the IDZ; and, (ii) the back of the port area and the new deepwater Port of Ngqura. The CDC is responsible for the landside infrastructure, while the modern deep-water port facility is the responsibility of Transnet’s National Ports Authority, a division of Transnet Limited. The Port of Ngqura is scheduled to receive commercial vessels in October 2009 and the IDZ is already operational with 13 investors established.133

Development of the first five zones is geared towards: light electronics and commercial; automotives; textiles and agro-processing; academic and training; services; and heavy to medium manufacturing.

The Coega IDZ focuses on the following sectors: (i) metals; (ii) textiles; (iii) automotive; (iv) services; (v) chemicals; and, (vi) energy.

Investment made vs. investment committed

As stated above, the project has thus far cost about R 8 billion, excluding investment incentives.

In 2005, during the construction period, the project was estimated to be capable of generating significant economic benefits, including: (i) an additional income stream of between R 1.6 billion and R 2.4 billion (USD 200 to 300 million) nationally; and, (ii) between 36,500 and 57,500 direct, indirect and induced jobs.

In May 2005, Belgian-owned Sander International Textiles became the development's first tenant, with investments worth R 200 million. A high-end niche textile producer, Sander invested the capital in the construction of a sophisticated weaving mill, taking a 20-year lease on 10 of the 40 hectares allocated for the textile cluster of the IDZ. Local empowerment company Ican Foundation owned 51% of the project. German industrial group MAN Ferrostaal became the second confirmed industrial presence with a R 640 million (€ 80 million) investment for the first phase of a stainless steel precision strip mill at Coega, with a further R 960 million (€ 120 million) envisioned in a second phase. A third tenant quickly followed; Straits Chemicals who, along with an Asian partner, built a chemical factory worth R 1.1 billion. In 2008, 8 new investors signed up to take space in the zone.

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As at late 2009 investments total more than R 25 billion have been committed and more than 15,000 jobs have been created (construction and enterprise jobs, respectively 6,600 and 5,800).134 Due to electricity production constraints, the largest investment project of the zone, the aluminium smelter, due to have generated investments of about R 20 billion, has been cancelled.135

Deepwater port

The Port of Ngqura has been developed by the National Ports Authority of SA to complement the Coega Development Zone at a cost of R3.2 billion. The port has been designed to cater to the needs of existing and future investors in the Coega IDZ, and to make South Africa a hub in north-south and south-south sea traffic. Construction began in 2002, and the port became operational in 2008. It has been designed for 4,500 twenty foot equivalent unit (TEU) vessels, but can accommodate up to 6,500 TEU vessels. Funding of the entire port infrastructure was provided by Transnet and government.

Future projects

New developments include a 12,000 hectare prawn farming facility which will be established in the IDZ. The project, expected to reach full capacity by 2014, has a total investment value of R 9.2 billion. An economic impact study has shown that besides creating 11,000 largely semiskilled and unskilled direct jobs, Sea Ark’s Coega facility has the ability to generate 88,000 indirect employment opportunities in a range of support services ranging from transport to catering for the workforce, security, construction and maintenance. Advanced technology combines computer driven control systems with advanced biological science and is expected to influence future production of prawn and shrimp in other parts of the world. When fully rolled out by 2014, the plant will have capacity to produce 20 000 tons of prawns per year, most of which are expected to be exported. Watson also announced a deal with China Direct to provide and manage the Chinese company’s mariculture facility in Zhanjiang. PetroSA has plans to construct a R 39 billion crude oil refinery at Coega’s IDZ. The Coega refinery is one of the most important investment projects undertaken by a South African company, and it is estimated that the project will generate about 5,000 direct jobs and 20,000 indirect jobs.

Six automotive component manufacturers are in final stages of negotiation to conclude investment deals worth more than R1 billion at Coega, which will see a potential totally of 2,530 people employed between July 2008 and mid 2010. It is expected that three factories would be located in the Nelson Mandela Bay Logistics Park, and will help to increase the total number of operational investors to nine by March 2010.136

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Programme effectiveness and performance – the evidence so far While ambitious and equipped with significant capital and administrative resources, there is a sense that the IDZ programme has not achieved its overall objectives, and represents a very high cost to the South African economy, directly and from an opportunity standpoint.

Problems and issues that have emerged over time include, inter alia: 

The programme was designed in a bureaucratic fashion with insufficient consultations with key stakeholders and lack of relevant international benchmarks/best practice.



There has been, and remains, uncertainty over the programme’s adequacy in terms of its strategy and configuration.



In this regard, the choice of locations near ports has in fact turned the programme into a regional development scheme, thus diminishing its efficacy as a tool for national competitiveness-enhancement.



The incentives structure and application processes are complicated, difficult to understand for both operators and investors, and burdensome in terms of administration. There is no clear evidence that these incentives are effective and internationally competitive.



The governance structure is complex and insufficiently responsive to the needs of operators and investors.



There is a lack of consensus, buy-in and support for the IDZ programme in South African society as a whole, and in the labour and business communities in particular.



The programme seems to have generated large capital investments for infrastructure development, and provides incentives that are costly to the treasury. However, the economic benefits stream so far is not clearly evident.

Programme design, efficacy and regional choices

It appears that the programme was designed through a process that did not sufficiently consult with potential candidates, was not based on sufficient integration of international best practice, and may not have been judicious from a strategic standpoint.

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It is unclear that the programme was designed using the types of rigorous methodologies that apply to projects of this nature. For instance, it has not been confirmed whether the programme’s key characteristics – such as strategic orientation, regulatory framework, spatial characteristics, governance, incentives, financing, etc. – where subjected to rigorous international benchmarking and economic assessments. It seems that the programme was primarily designed through a bureaucratic process involving primarily the DTI itself.

In terms of overall orientation, the IDZ programme is geared toward heavy manufacturing and capital-intensive activities. While there is evidence that the programme is attracting this type of investment, it is not evident that this orientation is adequate to redress long term economic equity and unemployment issues. This is addressed more fully further below.

Circumstantial evidence gathered from previous research and discussions with the East London IDZ (ELIDZ) documented in a Work and Health in Southern Africa (WAHSA) report in 2006, indicate that amendments to the IDZ legislation were the result of concerns expressed by IDZ Operators that conditions provided for in the regulations were not sufficiently attractive to foreign investment. An international consultant on SEZs had been retained by the ELIDZ to advise on aspects of its operations that needed to be revised. Among the issues raised was the need to improve tax incentives. Other concerns expressed by ELIDZ managers were the potential for strikes, and the relatively high wages set by collective bargaining procedures (from which IDZ enterprises are presumably not exempt).137

In terms of spatial orientation, while there is economic value in developing certain areas and establishing industrial zones in South Africa, many critics have called into question the underlying rationale of developing certain IDZs at enormous economic costs for the country. South Africa’s IDZ and spatial development initiatives have been involved with the identification of industrial locations in specific unfavourable areas and used incentives to encourage firms to situate in these areas. Whilst regional under-development is a matter of urgency in many locations, it must be seen that regional policy has had very limited success, in spite of enormous resources government has poured into it. It is well-known that South Africa has had poor success in this regard. International experience suggests that if EPZs are located in backward areas with poor social and economic infrastructure and lack of industrial culture, performance is likely to be below expectation.

For a programme of such ambition and cost, there is very little analysis or examination and research available or done so far on these zones, their impacts and their possible successes or failures. Very limited work investigating the true yields and returns has been done. There has been very limited impact assessment and analysis so as to gauge their actual impacts several years into the timeline of these projects, and very limited objective opinion about the success rates or failures of these initiatives.

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Lack of buy-in

The absence of consultations and dialogue on the IDZ programme seems to have continued into the present. As a result, there is very little awareness, understanding and interest in the IDZ programme. This is true domestically as well as internationally, where South Africa’s IDZs do not feature on par with SEZ programmes such as those of Asia and Latin American countries, or even the Mauritius Export Processing Zone.

There seems to have been very little public debate, investigation or exposure of statistics and trends from the IDZs within South African society. The choices of using IDZs, configuring and locating them were made within government, with little or insufficient input from key constituencies. It seems that the only public debates concerning the IDZ’s have been over local environmental concerns: the Coega IDZ in the Eastern Cape is in an ‘eco-sensitive’ area, in proximity to a marine reserve and a wildlife reserve, and there has been recent public debate about the establishment of a smelter in the Richards Bay IDZ and its anticipated impact on air pollution levels in adjacent residential areas.

There have only been a few articles in the media critical of the apparent slow progress of the zones to date, highlighting cases of a few potential investors who have withdrawn from IDZ, one to establish a plant in a nearby industrial manufacturing area, presumably without the duty and tax benefits of the IDZ.138 Few people know any details or insight into these projects, as they seem to take place behind closed doors.

This only reinforces the lack of buy-in from key constituencies. This is a critical weakness, impacting investment promotion and the possibility of true public-private partnerships in capital funding. As a result, government remains the only real developer in the project, directly and indirectly through developers without private sector participation.

Inadequate incentives

The plethora of incentive programmes is not short of bewildering. They all operate separately and individually so there is limited information sharing or interaction between them. This also places a large burden on companies who have to apply for each of these individually, involving a heavy and time consuming bureaucratic process. There is very limited streamlining or simplification of process to help improve companies’ abilities to access these various grants and support programmes. Many smaller companies do not have the time or the man power to dedicate to complicated application processes and bureaucratic paper trails.

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Yet, the South African automotive industryâ&#x20AC;&#x2122;s success shows that a proper incentive programme can be effective. In this regard, the performance of the automotive sector has been encouraging and demonstrates what can be achieved by an effective industrial development strategy. Indeed, the distinctive feature of the industrial policy that affected the auto industry was the effective array of selective policies which were adopted. The effective elements of the Motor Industry Development Programme (MIDP) were supported by a simplified administrative system, not burdened by excessive bureaucracy and had very limited scope for corruption and abuse. The programme offered simplified support systems and incentives, rather than intricate and elaborate programmes that are currently offered for industrial and export support by the SA government.

The incentives programme seems to be a costly component of the drive to make South Africa a competitive destination for manufacturing activities. While there is no data on this, the issue of costs versus benefits needs to be incorporated in the programme.

Governance

The governance structure was initially designed to foster public-private partnerships, allow rapid development of zones, and their effective promotion and administration. Evidence so far, including perception from investors and operators, suggest that this has not been achieved. The governance structure does not appear to represent international best practice.

The governance structure appears complex and arcane. The allocation of responsibilities is not straightforward, and is bureaucratic. Private sector investors have an impression that their counterparts lack a clear understanding of important sector role-players and the global economic environment they operate in. There is an impression that DTIâ&#x20AC;&#x2122;s main focus is on the infrastructure and incentives offering, and little understanding of other critical cost and locational issues. As a result, it is perceived that the administration pushes its incentives too quickly. In terms of implementation and support to prospective and committed investors, responsible agencies face inadequate numbers of service providers and/or programmes, an inclination to top down approaches to deliver service, and preponderance for gaps between the needs of entrepreneurs and the types of services offered. There is insufficient collaboration between agencies and service providers, leaving investors to learn to navigate the bureaucratic environment. It seems that the program does not develop entrepreneurial culture within the agencies in place, but rather seek to reinforce bureaucratic behaviours.139

The emphasis on picking champions means that the process of selection of investors is essentially bureaucratic. This is not at all aligned with international best practice. Bureaucracies are poorly equipped to identify sectors that should be targeted for promotion and investment. Selection criteria are always subjective, and are far too static in an extremely dynamic international economic environment. In addition, the selection process requires competencies

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that are rarely available, and create opportunities for corruption, fraud and undue influence over the investor.

Immense economic cost and unclear long term impact

There is a dearth of data, analysis, knowledge and communication on the economic contribution of the IDZ programme to the economy of South Africa and the immediate hinterland of each existing zone.

Available data and superficial analysis of the IDZ programme indicates that the programme is extremely capital-intensive, both in terms of public investment (infrastructure and incentives) and in terms of the type of private investment required. Data made available by the DTI is summarised here, and some high level analysis is attempt to achieve some high level indication of the programmeâ&#x20AC;&#x2122;s overall performance. Table 2 provides an overview of each of the zoneâ&#x20AC;&#x2122;s key investment and job creation achievements. Data for Coega appears to include the aluminium smelter. It is kept in table 2 and 3, but removed from the summary analysis in table 4. It must be noted that the estimates are very approximate, and do not include the necessary discount rates. Table 3: Private sector key data for Coega, East London and Richards Bay 2005/06 Coega IDZ New investors Value of investments Jobs created East London IDZ New investors Value of investments Jobs created

3 0.14 200

2006/07

2007/08

2009/09

2009/10

2010/11

2011/12

9 20.4 10,700

4 5.9 4,867

9 20.07 4,906

10 5 2,000

15 7.5 3,000

18 9 3,600

65 67.87 29,073

5 0.31 196

6 0.27 649

7 0.35 525

5 0.25 360

6 0.3 432

7 0.35 504

39 1.97 2,866

1 0.65 1,200

0 0 140

4 1.9 375

5 2 400

4 2.2 500

14 6.75 2,615

11 6.82 6,716

16 20.42 5,571

19 7.15 2,735

26 9.8 3,832

29 11.55 4,604

118 76.59 34,554

Richards Bay IDZ New investors Value of investments Jobs created Total New investors Value of investments Jobs created

3 0.14 200

14 20.71 10,896

Source: The Department of Trade and Industry, South Africa140

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Table 3 summarises the above data, included known government capital investment made so far. The data thus excludes future government capital investment, for which no data is available. It does not provide government capital investment for Richards Bay, for which no data is available. The table includes the construction cost of the Port Ngqura and the construction jobs for the Port or the IDZs. It is worth noting that constructions jobs for both the IDZ and the Port is over 54,000 and will represent a meaningful income stream to the local economy. While these jobs are significant, they are essentially short-term and cannot be used in themselves to justify the expenditures engaged. Moreover, these construction jobs are almost double the number of full time direct jobs expected to be created by firms investing in the IDZs.

Table 4: Summary, including infrastructure investments and construction jobs

Coega IDZ East London IDZ Richards Bay IDZ Total

Government Capex Investment, in R Million

Total Firm Investment, in R Million

Total Capex Investment

No. of Projects

Jobs Created by Firms

Construction Jobs

7,700 1,000 n.a. 9,000

47,800 1,970 6,750 56,520

55,500 2,970 6,750 65,520

65 39 14 118

25,167 2,866 2,615 30,648

54,540 n.a n.a 54,540

Total Jobs 79,707 2,866 2,615 85,188

Derived from data from the Department of Trade and Industry

The summary table indicates at total government capital investment of at least R 9 billion up to 2008/09. As the zones are not fully developed, it should be assumed that final capital investment will be greater than R10 billion for the three zones. New zone projects will add to this. In terms of total investments committed, the amount will be about R 56 billion by 2012. Coega is expected to take the lionâ&#x20AC;&#x2122;s share of this. Employment creation, excluding construction, is modest, estimated at some 30,000 by 2012 for all zones.

The ratios are enlightening.

Table 5: Analysis of key ratios for Coega, East London and Richards Bay Ratios Average firms investment, in R million Jobs created per each R1,000,000 invested by firms Firms investment per job created Jobs created per each R1,000,000 invested by government Government investment per job created Jobs created per each R1,000,000 invested (gov. and firms) Government and firms investment per job created Total jobs created per each R1,000,000 invested Government and firms investment per total job created

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CIDZ 735 0.5 1,899,313 3.3 305,956 0.5 2,205,269 1.4 696,300

ELIDZ 51 1.5 687,369 2.9 348,918 1.0 1,036,288 n.a n.a

RBIDZ 482 0.4 2,581,262 n.a. n.a. 0.4 2,581,262 n.a n.a

Total 479 0.5 1,844,166 n.a. n.a. 0.5 2,137,823 n.a n.a

Claude Baissac

Derived from data from the Department of Trade and Industry

Indeed, they confirm the astonishingly high capital intensity of the IDZ programme. The average investment by committed firm is R 479 million, from R 735 million in Coega to R 51 million in East London. The investment yield in terms of jobs is extremely low. Total investment committed so far (government and firms) stands at R 85 billion. This is substantial. However, this is expected to generate only 85,000 direct jobs, including construction jobs. This translates into a global job creation ratio per R 1 million invested of 1.4 – where it takes about R 750,000 of investment to generate one direct employment. Considering that construction jobs (about 55,000) are short term creations, it is more appropriate to calculate the employment impact by excluding them. In that case, with a figure of about 30,500, the ratio is even smaller, with R 2 million required to create one job. The yield of government investment is 3.3 jobs per R 1 million invested.

Assuming an indirect job creation of 1.5 for each 1 direct job (which is more realistic than the ratio of 1:4 used by Government), the results are as follows:

Table 6: Estimation of total employment creation up to 2012

Coega IDZ East London IDZ Richards Bay IDZ Total

Jobs Created by Firms

Construction Jobs

25,167 2,866 2,615 30,648

54,540 n.a n.a 54,540

Total Jobs 79,707 2,866 2,615 85,188

Indirect Jobs Created by Firms

Indirect Construction Jobs

Indirect Total Jobs

Total Direct and Indirect Jobs

37,750 4,299 3,922 45,972

81,810. n.a n.a 81,810.

119,560 4,299 3,922 127,782

199,267 7,165 6,537 212,970

Derived from data from the Department of Trade and Industry

The projected employment creation is not insignificant. It however remains low given the very large investments made and the country’s employment creation needs. Indeed, assuming that the figure of 212,970 is approximately correct, and that this figure represents those actively employed as at 2012 (which is unlikely as construction work would have by then been completed), this very optimistic and unlikely figure represents less than 1.2 percent of the country’s total labour force – assuming this remains stable at 17.2 million. IDZs are therefore not a meaningful contributor to employment creation nationally.

Conclusions

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The new economics of SEZs Packaged competitiveness

Special economic zones represent a policy concentrate designed to increase growth by creating an economic environment which offers significantly better investment and operating conditions than the rest of the domestic economy, and ensure that conditions of international competiveness are created. Under optimal conditions of strategy, design, location, factors endowment, regulation and governance, SEZs have proven their capacity to generate significant static and dynamic economic benefits. They then represent a form of ‘packaged competitiveness’ through the combined offering of regulation, governance and infrastructure. This package is actual and virtual: actual because each component combined with the others effectively decreases transaction costs for investors and operators in a competitive business micro-climate; virtual because the very packaged nature of this micro-climate creates its own visibility to potential investors. It becomes an effective marketing tool to attract investors and generate a ‘national brand’.

The competitiveness of SEZs compared with other economic zones rests in a concentrated set of competitive assets: (i) a regulatory regime that enhances the business climate and decreases the cost of doing business; (ii) an efficient governance structure that provides a solid development strategy and implementation, ensures effective performance of the regime, and supplies responsive zone management; and (iii) a strong infrastructure offering combining world class business/technology/industrial/commercial park(s) and transport nodes. As such, SEZs can be seen as ‘competitiveness boosters’: their average growth is not only higher than the growth of their immediate hinterland, but it participates in pulling this hinterland’s growth rate through investment and commercial relationships, employment, borrowing, technology transfers, and so on.

To be truly effective, special economic zones must provide a business climate that is significantly better than that of the domestic economy and/or of its most direct competitors within the region or internationally.

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their host economies when they provide for flexible, competitive, yet quality labour conditions. In this regard, SEZs can in fact play a positive national role in the upliftment of the labour force.

This means that government plays a limited role in investment selection. In this regard, onerous investment criteria and the necessity to apply extensive selection processes through bureaucratic means have been replaced with simple regulation that ensures equal access by investors, and leave the decision-making process for investment to the investor and zone operator â&#x20AC;&#x201C; provided the investment proposed matches the broad sectoral objectives of the zone, does not breach national regulation on investment, and conforms to zoning and environmental requirements. The market is trusted to match demand with supply.

Maximising benefits, controlling costs

SEZs are not a panacea for economic growth and development. They are but one of the policy instruments at the disposal of government to attract investment, promote manufacturing and diversified activities, support employment creation, generate export earnings, and act as a catalyst for innovation. In this domain, there is a direct relationship between the success of the zone and the regime established, its administration, the format for public-private partnerships, location choices and overall strategy. Equally critical is the commitment of government and key domestic institutional actors to make the SEZ(s) a success. In that regard, the developmental

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impact of an SEZ tends to be positively correlated to crucial political and administrative factors. SEZs do not succeed when they are confronted to heavy bureaucratic and regulatory environments.

Under the right conditions, and as shown by the latest work on the matter, SEZs provide a strong boost to economic growth and act as a catalyst for positive economic change, in addition to providing some important static economic benefits.

The attractiveness of SEZs to investment increasingly rests into the creation of the competitiveness mentioned above. While incentives play a role in this, it is crucial that they be treated as one of the components of the overall package rather than the default, quasi-obligatory foundation so many governments assume is the foundation of competitiveness. All things being otherwise equal, incentives represent a marginal benefit to the investment decision of the vast majority of economic operators. What matters is the overall competitiveness they will derive from investing and operating in a specific environment.

This means that governments should refrain from the reflexive need to provide massive incentives without having conducted extensive analysis of their countries competitiveness and identified the critical obstacles that confront the growth and development of a diversified, nontraditional export-oriented tradable sector. The design of the SEZ regime and the proposed infrastructure and value-added services to investors, the location of the zone(s), the sectoral orientation, the governance structure, and the incentives, should all be functions of the outcome of that analysis. Done in such a way, maximising on existing assets and capabilities, and ‘deputising’ the private sector, SEZs costs should be significantly lower and the opportunity cost should be kept under control. Turnkey SEZ projects are certainly attractive from that standpoint. The ‘deputisation’ of the private sector or the turnkey developer is almost complete. The developer will not invest in a new zone unless he has conducted a thorough due diligence, which brings a greater chance of success. SEZ turnkey developers usually already own and operate zones in other countries and regions, have the required capital and expertise, and provide credibility that in itself acts as investment promotion – in addition to the promotion they do on the back of their network and the investment they make into it. These projects thus shift a large part of the risk to the developer.

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However, these projects present new challenges to host countries. The relationship between the promoter and the candidate is reversed. In normal PPP projects, the country acts as promoter selecting a candidate for the right to develop the project. In turnkey project, it is the country which is often selected by the promoter. The country loses a significant part of its decisionmaking power in key aspects of the project. In some extreme cases, questions about possible loss of sovereignty appear. This is currently the case in Mauritius in relation to the Chinese SEZ.

SEZs and structural economic reform

The relationship between SEZs and structural economic reforms is a complex matter. The case studies in this report show that SEZs can be an integral component of a secular economic reorientation from traditional, primary commodity economies to diversified, balanced and high productivity economies. The examples of Malaysia and Mauritius show the positive long-term demonstration role SEZs played while achieving short-term benefits that â&#x20AC;&#x2DC;bought timeâ&#x20AC;&#x2122; for structural reforms. In both cases the SEZ sector allowed for the initial protection of a domestic economy insufficiently competitive, creating a path for progressive efficiency gains. In time, the two countries felt confident enough to progressively open their economies, notably after strong domestic enterprises were created and the economy was diversified enough to better sustain external shocks. This path has been similar to some degrees of variation with a number of other earlier emerging nations, including Taiwan and South Korea.

SEZs are thus a double-edged sword: ď&#x201A;ˇ

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oriented experience to the rest of the economy without this process to generate unbearable costs, and thus opposition from labour and domestic businesses (rent seekers). 

The successful emerging countries that employed the SEZ/EPZ route have for the most part chosen the first route.

South Africa’s IDZ programme – implications from the SEZ experience South Africa’s IDZ programme reproduces some of the characteristics of SEZs, and notably export processing zones. Yet, the programme is not an SEZ programme: 



It does not have a dedicated government administration with the autonomy and authority required to govern the programme with enough impact and efficacy.



The programme does not provide a specific set of incentives that clarify the rules of the game and simplify investment and operation.

South Africa’s IDZ programme is a hybrid between normal industrial zones and SEZs. It is not clear from the available evidence that this has been entirely beneficial.

Performance of the IDZ programme

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A study by Hosking and Bond (2000) warned against the viability of the Coega IDZ arguing that according to their calculations, opportunity costs are very high. For instance the ecotourism opportunity cost for the region was estimated at R 50 million per annum. The study also raised the environmental threats to the existing local industries, principally fishing and citrus production. Construction of a new deepwater port (the Port of Ngqura) on the Coega River at a cost of R 3.1 billion is not convincing if considering the existing port’s relative share of the country’s total port cargo activity. In 2007, the country’s total port cargo handled 183.3 million tons. Richards Bay remains the leader handling 46% of this total, with its tonnage comprising mainly coal, wood-chips, ferro-alloys, chrome ore and alumina. In second place, Saldanha’s share of 24% comprised mainly of iron ore. Durban in third place (23%) handled mainly petroleum and general cargo. However, Port Elizabeth’s share is only 3% with manganese ore as the main contributor.141

Investment figures for committed firms are very high. DTI data indicates, discounting the aluminium smelter, an expected commitment of over R 56 billion. This figure seems somewhat optimistic, and may not reflect actual investment. In fairness the electricity crisis and the international economic environment have not aided. The loss of the aluminium smelter has represented a serious blow to the credibility of the strategy. It has highlighted the contradictions between the country’s changing comparative advantage and the strategy chosen by Government. The strategic choice made by the IDZ programme is to have combined heavy, capital-intensive industrial development with regional development. This is a costly choice, economically and socially. It is evident that this choice has a significant direct and opportunity cost, notably:   

Direct budgetary cost. Budgetary opportunity cost. Social cost and opportunity cost, notably in terms of employment generated.

While the programme has attracted investment, and South Africa has shown itself capable of attracting competitive industries, there remains uncertainty about the country’s comparative advantage.

The overall proposition to investors appears to be of questionable relevance.

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The real benefits and returns of locating in IDZs are limited as there were no significant comparative cost advantages, especially with evaporation of electricity price differential. South Africa is in general at a relative disadvantage from a costing standpoint, and is not aided by legislation challenging to business. The regions selected for the IDZs are even less competitive, with access to labour, skills and relevant support services, but also suppliers, being limited.

An uncertain policy context

How to realign the IDZ programme: a template It is too early to tell whether the country’s IDZ programme has achieved its objectives and has contributed to South Africa’s economy in a way these types of instruments can. In terms of its performance so far, it has attracted large amounts of investment in capital-intensive industries with strong cluster-generating capacities, and with large export prospects. It is however appears to have been too costly, complicated to administer, and has not created the kind of impact that SEZs can achieve. In terms of its benefit stream, the evidence so far is ambivalent. Furthermore, its sectoral and geographic orientations must be questioned, as they seem to bring litte in terms of what the country needs to achieve socially sustainable growth. In this regard, its opportunity cost to economy is probably excessive. In relation to improving the programme’s economic relevance, and achieving the kind of static and dynamic impact seen in other emerging countries which have successfully employed SEZs, it is probably not feasible to leave the IDZ programme as it is and start a parallel SEZ programme, should there be an interest in creating a more effective export-oriented manufacturing regime to supplement the economy and support greater employment creation.

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This would be costly and patently unfair to existing investors. It would make more sense to consider realigning or ‘reengineering’ the IDZ programme toward greater economic efficiency and relevance.

A meaningful reengineering of the IDZ programme should be rooted on a number of foundations:

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

The impact of the IDZ programme on the above strategy and on FDI, non-traditional manufacturing activities and exports must be assessed in details, and its potential role must be adequately defined.



Claude Baissac

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

Claude Baissac

Annexure A: International Labour Office Table of Special Economic Zones Trade Free port Physical characteristics:

entire city or jurisdiction

Economic objectives:

development of trading centre and diversified economic base all goods for use in trade, industry, consumption trade, service, industry, banking, etc.

Duty free goods allowed: Typical activities:

Manufacturing Special economic zone entire province region or municipality deregulation; private sector investment in restricted area selective basis

all types of industry and services

Incentives: taxation; customs duties; labour laws; other

simple business start-up; minimal tax and regulatory restraints. Waivers with regard to termination of employment and overtime. Free repatriation of capital, profits and dividends preferential interest rates.

reduced business taxes; liberalised labour codes; reduced foreign exchange controls. no specific advantages; trade unions are discouraged within the SEZ

Domestic sales

unrestricted within freeport outside freeport, upon payment of full duty additional incentives and streamlined procedures Hong-Kong (China), Singapore, Bahamas freeport, Batam, Labuan, Macao

highly restricted

Other features

Typical examples

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part of city or entire city

Services Information processing zone part of city or "zone within zone"

development of export industry

development of SMEs in depressed areas

development of information processing centre

capital equipment and production inputs light industry and manufacturing

capital equipment

all

profits tax abatement and regulatory relief; exemption from foreign exchange controls. free repatriation of profits. Trade union freedom restricted despite the fact that EPZs are required to respect national employment regulations.15 years exemptions on all taxes(maximum) limited to small portion of production

zoning relief; simplified business registration; local tax abatement; reduction of licensing requirements. Trade unions are prohibited. Government mandated liberal on hiring and firing of workers

data processing, software development, computer graphics demonopolization and deregulation of telecoms; access to market- priced INTELSAT services. a specific authority manages labour relations. Trade union freedom restricted

Industrial free zone / EPZ enclave or industrial park

developed by socialist countries

may be extended to single- factory sites

China (southern provinces, including Hainan and Shenzhen)

Ireland, Taiwan (China), Malaysia,Dominican Republic, Mauritius,Kenya, Hungary

Enterprise zone

Indonesia, Senegal

India-Bangalore, Caribbean

Financial services zone entire city or "zone within zone" development of offshore banking, insurance, securities hub varies

financial services

tax relief; strict confidentiality; deregulation of currency exchange and capital movements.free repatriation of profits

Commercial free zone warehouse area, often adjacent to port or airport facilitation of trade and imports

all goods for storage and reexport of import warehousing, packaging, distribution, transshipment exemption from import quotas. reinvested profits wholly tax-free

limited to small portion of production

unlimited, upon payment of full duty

Bahrein, Dubai, Caribbean, Turkey, Cayman

Jebel ali, Colon, Miami (USA FTZ) Mauritius, Iran

Claude Baissac

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Endnotes 1

Foreign Investment Advisory Service, Special Economic Zones. Performance, Lessons Learned, and Implications for Zone Development, Washington. DC, 2008.

http://colonfreezone.com, 15 September 2009.

http://www.ftz.go.kr/eng/main.jsp, 15 September 2009.

http://www.investmauritius.com, 15 September 2009.

http://www.leecountybusiness.com/BusinessResources_Incentives_EnterpriseZone.aspx, 15 September 2009.

C K Leong, A Tale of Two Countries: Openness and Growth in China and India, Nanyang Technological University, June 2007

T Ota, The Role of Special Economic Zones in Chinaâ&#x20AC;&#x2122;s Economic Development as Compared with Asian Export Processing Zones: 1979-1995, Asia in Extenso, Universite de Poitiers, March 2003.

www.rti.com, 15 September 2009.

OECD, Incentives and Free Zones in the MENA Region, Paris: OECD, 2005.

J P Singa Boyange, ILO Database on Export Processing Zones (Revised), Sectoral Activity Programme, Geneva, International Labour Office, April 2007.

www.wepza.org, 18 September 2009.

http://www.wepza.org/azc.html, 18 September 2009.

Ibid.

J P Singa Boyange, ILO Database on Export Processing Zones.

FIAS, Special Economic Zones.

M Engman, S Onodera and E Pinali, Export Processing Zones. Past and Future Role in Trade and Development, OECD Trade Policy Working Papers No.53, May 2007.

J P Singa Boyange, ILO Database on Export Processing Zones.

FIAS, Special Economic Zones.

Ibid.

http://www.ftz.go.kr/eng/main.jsp, 15 September 2009.

H Johansson, The Economics of Export Processing Zones Revisited, Development Policy Review, 12, pp 387402, 1994.

Ibid.

J Currie, Investment: The Growing Role of Export Processing Zones, London: The Economist Intelligence Unit, 1979.

T Ota, The Role of Special Economic Zones in Chinaâ&#x20AC;&#x2122;s Economic Development.

P Warr, Export Processing Zones: The Economics of Enclave Manufacturing, The World Bank Research Observer, 4(1), pp. 65-88, 1989.

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The World Bank, Export Processing Zones, Washington, D.C.: The World Bank, 1992.

For instance, see: K Hamada, An Economic Analysis of the Duty-Free Trade Zone, Journal of International Economics, 4 pp, 225-241, 1974; also: D Madani, A Review of the Role and Impact of Export Processing Zones, Washington DC: The World Bank, 1999.

R Kaplinsky, Export Processing Zones in the Dominican Republic: Transforming Manufactures into Commodities, World Development, 21(11), pp 1851-1865, November 1993.

IFCTU, Behind the Brand Names. Working Conditions and Labour Rights in Export Processing Zones, December 2004.

According to a recent World Bank report, (S Creskoff and P Walkenhorst, Implications of WTO Disciplines for Special Economic Zones in Developing Countries, World Bank Policy Research Paper No. 4892, Washington, DC: The World Bank, April 2009): SEZ-related incentives can be broadly grouped into three categories: (i) measures that seem to be WTO consistent, (ii) measures that seem to be prohibited or subject to challenge under WTO law, and (iii) and measures where WTO consistency depends on the facts of the particular case. It should be noted that pursuant to Special and Differential Treatment (SDT), least developed WTO Members and countries whose per capita gross national product is under US$1,000 in 1990 dollars are currently generally exempt from the disciplines of the Agreement on Subsidies and Countervailing Measures. Moreover, 16 countries are currently exempt pursuant to phase-out provisions for certain “grandfathered” programs through 2015.3 Hence, the WTO disciplines have most immediate relevance for middle-income WTO members that are not exempt for certain “grandfathered” programs, but will also concern other developing countries in the future, as their exemption expires or their per-capita income passes the US$1,000 threshold (page 4)

M Tekere, Export Development and Export-led Strategies: Export Processing Zones and the Strenghtening of Human Development (SHD), ICTSD Globalisation Dialogues, Africa, Windhoek, May 2000.

P Romer, Two Strategies for Economic Development: Using Ideas and producing Ideas, Proceedings of the World Bank Annual Conference on Development Economics. Washington, DC: The World Bank, 1993.

H Johansson, The Economics of Export Processing Zones Revisited, Development Policy Review, 12, pp 387402, 1994.

H Johansson and L Nilsson, Export Processing Zones as Catalysts, World Development, 25 (12), 2115-2128, 1997.

P Romer, Idea Gaps and Object Gaps in Economic Development, Journal of Monetary Economics, 32, pp 543573, 1993.

H Johansson and L Nilsson, Export Processing Zones as Catalysts.

M Murayama and N Yokota, Revisiting Labour and Gender Issues in Export Processing Zones: Cases of South Korea, Bangladesh and India, Economic & Political Weekly, 64(22), May 2009.

W G Tyler and A C Negrete, Economic Growth and Export Processing Zones: An Empirical Analysis of Policies to Cope with Dutch Disease, Proceedings of the LASA 2009 Congress, Rio de Janeiro, June 2009, http://lasa.international.pitt.edu/members/congress-papers/lasa2009/files/TylerWilliam.pdf, p 5.

Ibid.

Ibid., p 13.

WEPZA, Public versus Private Free Zones, Proceedings of the WEPZA XII International Conference of Free Zones, Colombo, Sri Lanka, Flagstaff: The Flagstaff Institute, 1993.

See Warr, Export Processing Zones: The Economics of Enclave Manufacturing.

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FIAS, Special Economic Zones.

Ibid.

The agreements of the WTO do not make reference to SEZs, and these are not considered an obstacle to international trade. However, some of the incentives that have been traditionally deployed to attract investments are clearly contrary to some of the agreements. This is the case with the Agreement on Subsidies and Countervailing Measures, or SCM. This agreement specifically prohibits subsidies linked to export performance and the use of domestic production inputs. Accordingly, all such measures are being phased out as of 2010. An extention exists for countries whose share of world exports were less than 0.1 percent in 19982000, and with a gross national income inferior to USD 20 billion in 2000 (FIAS, Special Economc Zones).

See S Lall, Reinventing Industrial Strategy: The Role of Government Policy in Building Industrial Competitiveness, UNCATD G-24 Discussion Paper No. 28, Geneva: UNCTAD, April 2004.

FIAS, Special Economic Zones.

WEPZA, Public versus Private Free Zones.

See M Engman, S Onodera and E Pinali, Export Processing Zones. Past and Future Role in Trade and Development, OECD Trade Policy Working Papers No.53, May 2007.

See S Radelet, Manufactured Exports, Export Platforms, and Economic Growth, Cambridge, MA: Harvard Institute of International Development, August 1999.

FIAS, Special Economic Zones, p 6.

WEPZA, Public versus Private Free Zones.

Derived from author’s project work in Africa, the Caribbean and the Middle East.

For a comprehensive description of PPPs, see: The World Bank, Attracting Investors to African Public Private Partnerships, A Project Preparation Guide, Washington, DC: The World Bank, 2009.

FIAS, Special Economic Zones.

Ibid.

The Commonwealth, Commonwealth to help Botswana set up free trade zone, 30 April 2008, http://www.thecommonwealth.org/news/34580/34581/178536/280408botswanatrade.htm.

Kenya to Create Special Economic Zones, Xinhua, 16 December 2009, http://english.cri.cn/6966/ 2009/12/16/1221s535845.htm.

Ibid.

M Tekere, Export Development and Export-led Strategies.

FIAS, Special Economic Zones.

M Davies, China’s Developmental Model Comes to Africa, Review of African Political Economy, 35(1), March 2008, pp 134-137.

Mauritius-China “Gateway to Africa” Aim, Africa Research Bulletin, 45(2), pp 17733A-17733B, March 2008.

Zone Economique de Riche-Terre Jin Fei Retient l’Attention, L’Express, 21 October 2009, http://www.epaper.lexpress.mu/epapermain.aspx?queryed=9&boxid=568328&parentid=10576&eddate=10/21/ 09.

P Karmody, An Asian-driven Economic Recovery in Africa? The Zambian Case, World Development, 37(7), pp 1197-1207, July 2009.

See: Jafza International to Develop Special Economic Zone in Senegal, AMEinfo.com, Tuesday 17 April 2007, http://www.ameinfo.com/117043.html; also see: http://www.jafza-senegal.com/index.html.

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Dubai World Unit Faces Default Test Monday With Bond Payment, The Wall Street Journal, 28 November 2009, http://online.wsj.com/article/BT-CO-20091128-700943.html.

M Tekere, Export Development and Export-led Strategies, p 36.

P L Watson, Export Processing Zones: Has Africa Missed the Boat? Not Yet! Africa Region Working Paper Series 17, Washington, DC: The World Bank, May 2001.

E and B Dommen, Mauritius: The Roots of Success. A Retrospective Study, 1960-1993, 1995.

From, A Subramanian, The Mauritian Success Story and its Lessons, UNU-WIDER Research Paper No. 2009/36, June 2009, p 9.

See J Paturau, Histoire Economique de l'Ile Maurice, Les Pailles: Henry & Cie. Press, 1988.

Ibid.

See: R Alter, Lessons from the Export Processing Zone in Mauritius, Finance and Development, 28(4), pp 710, 1991; and also: The World Bank, Mauritius: Expanding Horizons, Washington, DC: The World Bank, 1992.

C Baissac, Mauritius Seeks to Become First Full-Service Hub for Indian Ocean Region, Global Logistics and Supply Chain Strategies, December/January 1998.

See R Bheenick and M O Shapiro, The Mauritian Export Processing Zone, Public Administration and Development, 11, pp 263-267, 1991.

J P Cling et al., Export Processing Zones in Madagascar: the Impact of the Dismantling of Clothing Quotas on Employment and Labour Standards, DIAL - Developpement, Institutions et Analyses de Long Terme Document de Travail 2007-06, September 2007.

A Subramanian, The Mauritian Success Story and its Lessons, p 13.

Johansson, The Economics of Export Processing Zones Revisited.

R Sawkut, The Textile and Clothing Sector in Mauritius, in D Zhihua Zeng (ed), Knowledge, Technology and Cluster-based Growth, Washington, DC: The World Bank, pp 97-108, 2009

R Sannasee and R Pearce, Multinationals, Export Processing Zones and Development: the Case of Mauritius, 2002, http://www.aueb.gr/deos/EIBA2002.files/PAPERS/C234.pdf

See: G Gereffi and M Korzeniewicz (eds), Commodity Chains and Global Capitalism, Westport: Greenwood Press, 1994; and also: G Gereffi, Commodity Chains and Regional Divisions of Labor in East Asia, Journal of Asian Business, 12(1), pp 75-112, 1996.

A Subramanian, The Mauritian Success Story and its Lessons, p 23.

ITMF Meeting Heads To Mauritius, Textile World, July/August 2008, http://www.textileworld.com/ Articles/2008/August_2008/Features/ITMF_Meeting_Heads_To_mauritius.html.

R Sawkut, S Vinesh and F Sooraj, The Net Contribution of the Mauritian Export Processing Zone Using CostBenefit Analysis, Journal of International Development, 21, 379-392, October 2009.

See J Paturau, Histoire Economique de l'Ile Maurice.

Indian Ocean Commission, Review of the Economic Contribution of Tuna and Tuna Like Fish to the Economies of IOC Member Countries, 2007-2008.

Bheenick and Shapiro (R Bheenick and M O Shapiro, The Mauritian Export Processing Zone) confirm the extensive role of the Mauritian state in the strategic choices made well before the stabilisation and adjustment period and the centrality of the export processing zone in the adoption of export-orientation as national development policy:

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At the end of the 1960s, the government sent a team to study the export-oriented policies of Hong Kong, Jamaica, Puerto Rico, Singapore, and Taiwan. Based upon the team's report, Mauritian leaders decided to embark on an entirely new form of manufacturing activity - the processing of imported raw materials into finished goods for export. In December 1970, the Mauritian parliament passed the Export Processing Zones Act providing legal framework for the EPZ approach (page 264). 91

According to Robert, (M W Robert, Export Processing Zones in Jamaica and Mauritius. Evolution of an Export-oriented Model, San Francisco: Mellen Research University Press, 1992) particularly opposed to the export processing zone solution were the sugar barons, at the helm of the largest sector of the economy, and the Mouvement Militant Mauricien (MMM), the Mauritian communist party, for obviously different reasons. While the first group was concerned over the negative consequence of the EPZ on labour cost, the second opposed a choice which would insert Mauritius within the capitalist international production system. In addition to convincing these groups that the EPZ would "ultimately benefit all Mauritians" (page 101), the government had to obtain the political commitment of the legislature which resulted in the adoption of the Export Processing Zones Act of 1970.

According to Shapiro and Bheenick (R Bheenick and M O Shapiro, The Mauritian Export Processing Zone), The government soon realized that it would have to strengthen the capacity of the Ministry of Commerce and Industry to make the EPZ approach work. To bolster its staff size and expertise, assistance was secured under bilateral and multilateral foreign aid programmes. This facilitated the creation of new cells for projects evaluation, monitoring, investment promotion, export marketing, funding of projects, and provision of insurance to protect exporters against defaults by importers. While foreign consulting firms were initially used, they were replaced as soon as Mauritian authorities gained needed experience (pages 264-265).

http://www.investmauritius.com, 15 September 2009.

Notably: E and B Dommen, Mauritius: The Roots of Success. A Retrospective Study; E G Mukonoweshuro, Mauritius: The Dilemmas of Economic Diversification in a Mono-crop Economy, Social Change, 20, pp 6582, 1990; M W Robert, Export Processing Zones in Jamaica and Mauritius; and, T Meisenhelder, The Developmental State in Mauritius, The Journal of Modern African Studies, 35(2), pp 279-297, 1997.

T Meisenhelder, The Developmental State in Mauritius, p 25

T Meisenhelder, The Developmental State in Mauritius.

Ibid., p 73.

In that regard, the website of one of the Chinese companies contracted by China and Mauritius to finance, develop and manage the zone is most maladroit when it states that The Zone will become a place for regional headquarter, financial settlement, technical support, transit trade, commodity trade, holiday and living base. It is an ideal barbican (emphasis added) for Chinese enterprises to enter into African market (http://www.mtetzone.com/index.php?lang=english).

M Furby, Evaluating the Malaysian Export Processing Zones, with a Special Focus on the Electronic Industry, Master Thesis, School of Economics and Management, Lund University, Spring 2005.

100

L Ho Khai, Dynamics of Policy-making in Malaysia: The Formulation of the New Economic Policy and the National Development Policy, Asian Journal of Public Administration, 14(2), pp 204-227, 1992.

101

Ibid., p 206.

102

According to government policy, as cited by L Ho Khai, Dynamics of Policy-making in Malaysia, The New Economic Policy is based upon arapidly expanding economy which offers increasing opportunities for all Malaysians as well as additional resources for development. Thus in the implementation of this Policy, the Government will ensure that no particular group will experience any

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loss or feel any sense of deprivation. (Second Malaysia Plan, 1971-1975, Kuala Lumpur: Government Press, 1971, p1) 103

A Lee Hwok, Industrial Development and Equity Distribution in Malaysian Manufacturing: Institutional Perspectives, Centre on Regulation and Competition Working Paper No. 25, University of Manchester, October 2002.

104

M Furby, Evaluating the Malaysian Export Processing Zones, p 28.

105

A Lee Hwok, Industrial Development and Equity Distribution in Malaysian Manufacturing.

106

Ibid.

107

V Kanapathy, Industrial Restructuring in Malaysia: Policy Shift and the Promotion of New Sources of Growth, Tokyo Club Foundation for Global Studies, January 2000.

108

M Furby, Evaluating the Malaysian Export Processing Zones, p 13.

109

Ibid.

110

J Abbot, Export Processing Zones and the Developing World, Contemporary Review, May 1997.

111

M Furby, Evaluating the Malaysian Export Processing Zones, p 13.

112

The World Bank, A Public-private Partnership Brings Order to Aqaba’s Port, Doing Business Case Study, Washington, DC: The World Bank, 2008 http://www.doingbusiness.org/documents/CaseStudies/ Jordan_CS2008.pdf .

113 See: M A Kardoosh, The Aqaba Special Economic Zone, Jordan: A Case Study of Governance, Center for Development Research, University of Bonn, January 2005; and also: A Harahsheh, Public-Private Free Zones: Policy, Institutions, and Physical Characteristics, An Enabling Environment and Economic Zones for Private Sector Development in Bangladesh, Washington DC: FIAS, 2000. 114

http://www.aqabazone.com/index.php?q=node/109, 25 September 2009.

115

Ibid.

116

http://www.adc.jo/, 25 September 2009.

117

http://www.aqabazone.com/index.php?q=node/109, 25 September 2009.

118

The author was Lead Economist on the Aqaba International Industrial Estate in 2000, and has conducted extensive research on the fate of the project since. Interviews with various individuals and entities took place for a number of research projects, and the section represents a summary of these.

119

Aqaba International Industrial Estate (AIIE), PBI Aqaba Industrial Estate, http://www.jordanecb.org/ pdf/AIIE.pdf.

120

V Tang, Zoning in on South Africa’s Industrial Development Zones, School of Economics and Finance: University of KwaZulu- Natal, TIPS Annual Forum, October 2008.

121

The Department of Trade and Industry, South Africa: Industrial Development Zones, http://www.thedti.gov.za/ investing/regulatoryenvironment.htm, 13 October 2009.

122

The South African Revenue Service (SARS): Industrial Development Zones, http://www.sars.gov.za/ home.asp?pid=44747, 14 October 2009.

123

V Tang, Zoning in on South Africa’s Industrial Development Zones.

124

South African Information: The A- Z of IDZs, idzguide.htm, 13 October 2009

125

The Department of Trade and Industry, South Africa: The Enterprise Organisation Division http://www.thedti.gov.za/thedti/organisation1e.htm,13 October 2009

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http://www.southafrica.info/business/investing/incentives/

Claude Baissac

126

SARS: Industrial Development Zones.

127

SARS: Industrial Development Zones.

128

The DTI, http://www.thedti.gov.za/offerings/.

129

Discussion with DTI official at The DTI in October 2009.

130

The Department of Trade and Industry, 2009 Budget.

131

The Coega Industrial Development Zone, http://www.coega.co.za/, 15 October 2009.

132

The Coega Industrial Development Zone, http://www.coega.co.za/, 15 October 2009.

133

The Coega Development Corporation, Request for proposal: External Auditor, 31 August 2009, http://www.coega.co.za/files/RFP_EXTERNAL_AUDITOR_CDC22209.pdf.

134

Coega Development Corporation, Annual Report 2007-2008.

135

Rio Tinto scraps Coega smelter plan on power woes, Mail & Guardian, 16 October 2009.

136

Coega Development Corporation, Media release: Coega announces 6 investors in Auto Park, Coega Communications Department, http://us-cdn.creamermedia.co.za/assets/articles/attachments/15250_coega.pdf

137

G Ryan et al., Inventory of a Free Trade Zone: Industrial Development Zones in South Africa, World and Health in Southern Africa Project Report 3.6.1, December 2006.

138

Ibid.

139

D Monkman, A Review of DTIâ&#x20AC;&#x2122;s SME financial assistance programmes and its proposal to create a new Integrated Financial Institution, Report commissioned by FinMark Trust, January 2003. http://www.finmarktrust.org.za/documents/2003/FEBRUARY/Final_Report.pdf , 19 October 2009.

140

The Department of Trade and Industry, 2009 Budget.

141

V Tang, Zoning in on South Africaâ&#x20AC;&#x2122;s Industrial Development Zones.

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