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Special Economic Zones
• Aligning incentives among key partners: The main challenges to the partnership arose in part because of the difficult balance of meeting both commercial and political objectives. For these high-profile projects, both objectives are critical. In the initial structure of the partnership arrangement, however, incentives were not properly aligned to address this balance. Although the flip in ownership and control of the project was the high-profile part of the realignment of incentives, a number of other important actions were taken to ensure that all stakeholders involved had the incentive to work toward common goals. • Establishing a strong institutional structure for project governance: The partnership developed a strong, multitiered governance structure for SIP, consisting of three elements: (1) a steering committee that functions as a platform of policy dialogue, coordination of policies among all government departments, and problem resolution when needed; (2) an empowered local authority who performs the government role and whose interest is closely aligned with the zone development; and (3) a joint venture development entity, invested by both parties so that both sides will share cost, risk, and return from zone development. • Planning for local phase-in: Although having the Singaporean partner control the project at the outset was practical, as the Chinese partner built its technical capacity, a phase-in of local management control was practical, both politically and commercially. • Recognizing the importance of flexibility: Given the long-term nature of these projects, and the large sunk costs to get them started, it is critical that partners show a willingness to evolve the business model as necessary. China and Singapore both proved to be highly practical in their approach to resolving the significant early stage challenges of the project. • Building mutual respect and recognizing capabilities and constraints: On the one hand, the host side should be flexible and ready to build a business-friendly investment environment in an innovative and pragmatic manner, and should provide the needed support to make zone development sustainable and profitable. On the other hand, the investor should respect the constraints that the host government faces and should take advantage of the local knowledge of its counterpart. SIP