Exim BankIndia

Special Economic Zones:Conducive Investment Regimes

byS.R. Rao

Chief General ManagerExport-Import Bank of India

New Delhi, April 29, 2004

2

Exim Bank

IndiaStructure of Presentation

Definition of SEZs / EPZs

Objectives of Setting up SEZs / EPZs

Common features of SEZs / FTZs

Performance of EPZs / SEZs in Select

Countries

Some Success Factors

Exim India: Role & Activities

3

Exim Bank

IndiaDefinition of EPZs / SEZs

World Bank: EPZs are defined as fenced-in-industrial estates specialising in manufacturing for exports that offer firms free trade conditions and a liberal regulatory environment.

India’s Exim Policy: SEZs are specifically delineated duty-free enclaves and shall be deemed to be foreign territories for the purpose of trade operations and duties and tariffs

4

Exim Bank

IndiaObjectives

To enhance foreign exchange earnings by

promoting exports

To attract Foreign Direct Investment and

induce technology transfers

To generate employment opportunities and

assist in income generation

5

Exim Bank

IndiaCommon Features

Unlimited duty- free imports of raw materials, intermediate inputs and capital goods

Minimal bureaucratic intervention or red tape with greater flexibility in labour laws.

Generous and long term tax holidays and concessions

Superior communication and infrastructure

6

Exim Bank

India

Performance of EPZs in Select Countries

Mauritius: Exports from EPZs are 64% of total exports.

More than 500 enterprises and 87,000 people employed in EPZs

Bangladesh: Exports from 6 EPZs contribute around 20% of total exports.

There are 180 industries in operation in EPZs

7

Exim Bank

India

Performance of EPZs in Select Countries (cont..)

Sri Lanka: It has 8 EPZs and 3 industrial parks.Exports from EPZs account for over 20% of the Country’s total exports

Mexico: The concept of an EPZ is reflected in the Maquiladora Programme.

They employ over 1 million workers in over 3800 maquiladoras and account for over 40% of total exports.

8

Exim Bank

IndiaSome Success Factors

Private Development and Management

The onsite infrastructure should be privately developed and managed.

Development of infrastructure external to zone to enable spillover effect by facilitating transport and communication.

Encourage economical use of resources and factors of production.

9

Exim Bank

India

Some Success Factors

Business Friendly Labour LawsRemove labour market constraints such as cumbersome firing procedures to reduce market adjustment and labour costs.

Strengthen legal and regulatory areas to prevent abuse of workers’ safety and health.

Create an agency to protect the interests of workers so as to reduce labour turnout and absenteeism and improve labour productivity.

10

Exim Bank

India

Some Success Factors

Role of GovernmentGovernment involvement needs to be clearly defined. It should provide the initial impetus like feasibility studies, encouraging private sector involvement and promoting the zone abroadIt should provide legal & regulatory framework and leave the running of the zone to private sector.It should provide a stable, efficient and transparent policy framework.

11

Exim Bank

IndiaSome Success Factors

Nodal Agency to act as a Facilitator and CatalystIt should aid in quality enhancement, productivity, innovation and creativity, cater to training requirements; carry out assignments to identify management and technical problems.It should act as a one stop service centre to provide assistance in identification of investment opportunities, site location, obtaining clearances E.g. Mauritius Export Processing Zones Development Authority (MEPZDA)E.g. Bangladesh Export Processing Zones Authority (BEPZA)

12

Exim Bank

India

Some Success Factors

Develop Sector Specific Economic ZonesFocus on specific areas of activities depending on locational advantage, local skill and infrastructure.E.g. Santacruz SEZ - focus on electronics and gems and jewellery.

Size of Economic ZonesIncrease in the size of the zones to impact economies of operations within the zone. E.g. Hainan SEZ (China) – 34,000 sq. kms

13

Exim Bank

IndiaSome Success Factors

Linkages between Zone & Domestic IndustryDevelop linkages by sourcing raw materials from domestic sources.Develop local partnerships through shared technology and investment in human resource. Encourage local suppliers by giving them incentives to supply to the economic zones.Set up an agency to identify and facilitate such linkages and enable local firms to procure skills and technology to supply to the zone.

14

Exim Bank

IndiaSome Success Factors

Implementation of IncentivesActual implementation of incentives which are granted has to be ensured. Incentives should be granted in a streamlined manner and documentation should be simplified.

Focus on QualityGiven the growing trend of global production networks, requiring suppliers to respond flexibly.Quality, productivity and innovation are needed to survive global competition and attract quality investors.

15

Exim Bank

IndiaExim India: Evolving Vision

To creating export capability by

arranging competitive financing at

various stages of the export

cycle

From financing,

facilitating andpromoting

India’sforeign trade

To developingcommercially viablerelationships with a

target set of externallyoriented companies by

offering them a comprehensive

range of products and services, aimed at

enhancing theirinternationalisation

efforts

16

Exim Bank

IndiaExim India: Role & Activities

Policy Input - Study on “Export Processing Zones in Select Countries: Critical Success Factors”

Study covered Mauritius, Bangladesh, Sri Lanka, China, UAE, Mexico, Malaysia, Philippines, Ireland and India – Success Factors in Other Countries

Study published as an Occasional Paper

17

Exim Bank

IndiaExim India: Role & Activities

Conducive financial environment essential for

Success of SEZs

Policy Input - Study on “Offshore Banking

Units in Select Countries” – Singapore,

Malaysia & Mauritius

Round Tables on “SEZs and Offshore

Banking Units”

18

Exim Bank

India

Thank You