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Plans for a Pilot Investment Zone

Second Meeting of the Working Group on Investment Zones in Iraq 23-24 November 2011, Istanbul

Christelle Monteillet

Iraq Project Advisor, MENA-OECD Investment Programme

• Aqaba Special Economic Zone (ASEZ)

• Tangiers Med Complex

• Options and recommendations for Iraq

Overview

• Aqaba Special Economic Zone (ASEZ):

– Located at the crossroads of three continents and three countries (Egypt, Israel and Saudi Arabia)

– Covers an area of 375 km² towards the south of Jordan

– Established through the Aqaba Special Economic Zone Law No. 32 of 2000 and launched in 2001 as a duty-free, low tax multi-sectoral development zone

– Regional energy hub and multi-modal transportation hub (road, sea, and air)

Aqaba Special Economic Zone

• Investment sectoral targets:

– 50% in the tourism industry

– 30% in a variety of services

– 13% in heavy industry

– 7% in light industry

• Key factors to attract investments:

– Low land and construction costs

– International airport and seaport

– Cultural, historical and seaside attractions

– Incentives


• Wide range of incentives: – Flat 5% income tax on net profit

– Exemption from annual land and building taxes on utilized property

– Exemption from taxes on distributed dividends and profits

– Duty-free imports of goods in commercial quantities

– No foreign equity restrictions on investments

– No foreign currency restrictions

– Full repatriation of profits and capital

– Streamlined labor and immigration procedures

– 100% foreign ownership

– Up to 70% foreign labor

– Availability of land for lease (up to 50 years) and sale

– Full guarantees on rights and ownership


• Aqaba Special Economic Zone Authority (ASEZA):

– Zone regulator reporting directly to the Prime Ministry

– Governed by a Board of Commissioners of 6 members

– Autonomous powers and regulatory independence

– Mission: develop ASEZ into a leading center of commerce, trade, industry, leisure and education in the Middle East


• ASEZA’s One-Stop-Shop:

– Automated business process for obtaining required permits and licenses

– 14 entities housed in one place to ensure required workflow to obtain necessary clearances for issuing permits and licenses

– Account executive is assigned to assist investors through the business start-up process


• Aqaba Development Corporation (ADC):

– Zone developer mandated to implement the ASEZ Master Plan and develop both the infrastructure and superstructure

– Established in 2004 as a private shareholding company governed by a board of directors and owned through a 50/50 joint venture partnership between the government of Jordan and ASEZA

– Owns the port, airport, significant parcels of land and certain utilities, and retains development and management rights for other projects


• ADC objectives:

– Enable ASEZA to focus exclusively on its regulatory function

– Accelerate development by introducing private sector principles, practices and imperatives to planning and implementaton of development projects

– Facilitate greater access to market-sourced capital

– Eliminate potential conflicts of interest within ASEZA by separating its regulatory and development functions

– Insulate key development decisions from political influence


• ADC partners with the private sector to implement key development priorities on a stand-alone basis or through Public Private Partnerships (PPP)

• Examples of PPP implemented:

– Port: Aqaba Container Terminal (REFOT) JD 800M (US 1.1 billion)

– Airport and Logistics: Aqaba Logistics Village (Concession) JD 28M (US 39 million)

– Real Estate and Enablers: Aqaba International School (MA) JD 5M (US 7 million)


• Stakeholders involved with ASEZ promotion activities:

– Jordan Tourism Board (JTB)

– PB Jordan (private operator/manager of Aqaba International Industrial Estates)

– ADC

– ASEZA

• Rationale behind ASEZ joint promotion efforts:

– Cost sharing

– Uniform and strong marketing message

– Avoid duplication of promotion efforts


Source: USAID


• Strategic location on the Strait of Gibraltar:

– Direct access to major East/West shipping routes without ship deviation

– Captures the North-South routes serving Africa and South America

Tangiers Med Complex

• Integrated project ensuring the development of a coherent combination of:

– Two ports (Tangiers Med 1 and Tangiers Med 2)

– A high-capacity rail link and road

– Industrial zones (Melloussa Industrial Zone, under construction)

– Free trade zones (Tangiers Med and Tangiers Free Zone [TFZ])

– Areas of urban development


Source: Université de Picardie


• Tangiers Med 1:

– Commissioned in 2007 as an industrial and logistics port integrated into the global trade network

– Capacity of 3 million containers (which should increase to 8 million by 2016)

– Platform accommodating all import-export related traffic

• Tangiers Med 2:

– Under construction since June 2009, operational in 2014

– Objective is to strengthen long-term potential of Strait of Gibraltar and become major hub for shipping containers

– Capacity of 5.2 million containers


• Infrastructure:

– Over EUR 20 billion investment in the infrastructure connecting the port to nearby roading and railway system

– Inauguration in 2008 of the 54 km long Tangiers-Tangiers Med motorway (EUR 400 million) which strengthened the port's competitive edge on land

– Opening of the 48 km-long railway line in 2009, connecting the port of Tangiers Med to the national rail network (EUR 300 million)


• The Tangiers Mediterranean Special Agency:

– Responsible for planning, development and management of Tangiers Med Port Complex and the industrial platform

– Established by Moroccan government in 2002 as unique representative of the State for all Tangiers Med project partners

– TMSA mission: • Build the Tangiers Med Ports

• Play the role of the Port Authority

• Develop a platform built on the industrial port and the container terminals


• TMSA mandate:

– Authority over the port:

• construction and maintenance of port infrastructures

• award of concessions to private actors to operate port facilities

• promotion of port development

– Territorial control over the entire Tangiers Free Zone

– Authority over public utilities (water, electricity)

– Plan and finance development and land use over the region and develop educational, training, health and environmental programmes in collaboration with local authorities


• Tangiers' Free Trade Zone (FTZ):

– Established in 1999, operating as an export

processing zone focused on agri-food, textiles

and leather, metallurgy, mechanical, electronics,

chemical and high-technology

– 500 hectare site managed by the Tangiers Free Zone Company, a subsidiary of the TMSA group

– Various incentives for investors: • Exemption from various trade-related duties and legislation

• Exemption from a range of taxes, including patent tax (for 15 years), urban tax (for 15 years), corporate income tax (for five years), capital gains tax and value added tax (VAT)


• TFZ One-Stop-Shop:

Source: OECD


• Key figures:

– 475 companies with 30 different activities

– 47,000 jobs created in 10 years

– USD 700 million worth of investments

– French automobile manufacturer Renault will start manufacturing operations in the TFZ in 2012:

• Target of 400,000 vehicles produced annually for export to Europe and West Africa and 80,000 for the Moroccan market

• 42% of the new car components expected to be sourced locally

• Suppliers expected to locate in an area dedicated to automobile manufacture of 60 hectares near the Renault factory in Melloussa


• Objectives set by the Iraqi National Development Plan 2010-2014 (NDP):

– Diversify the economy and exports away from the current heavy dependence on oil

– Complete the transition to a private sector led, market economy by strengthening the private sector

– Create 3-4 million jobs to reduce employment, especially the very high rates of unemployment amongst the young

Iraqi Objectives

• Iraq’s ten most competitive sectors1:

1. Plastics

2. Cement

3. Petrochemicals

4. Pharmaceuticals

5. Tourism

Sectoral focus and location options

6. Fisheries

7. Telecommunication

8. Financial Services/Banking

9. Poultry Production

10. Agri-food Processing

1 Iraq Competitiveness Analysis Final Report, May 1, 2006, USAID Izdihar Project (Iraq Private Sector Growth and Employment Generation)

• Creation of six economic zones with a sectoral focus: – Hatein: Manufacturing

– Baghdad International Airport: High-tech, communications and services

– Basra Province: Transport and logistical services

– Al-Anbar Province: Construction, glass and ceramics

– Nineveh Province: Specialized mechanical industries

– Middle Euphrates: Foodstuff industries

• Establishment of Special Economic Zones or Investment Zones through a specific implementation regulation based on Investment Law No. 13 of 2006


• Feasibility study:

– Comparative study of one or several potential sites

– Central themes: site selection, sectoral focus, funding and management models (including PPP)

– Carried out by a prestigious and independent internationally recognized consulting firm

– Detailed study of investment protection measures to identify legal protection reforms needed


• Options for establishment of public economic zones in cooperation with private sector:

– Public provision of off-site infrastructure and facilities (utilities, connections and roads) while private funding targets on-site infrastructure and facilities

– Build Operate and Transfer (BOT) approaches to on-site and off-site infrastructure including government guarantees and financial support

– Contracting private management for government owned zones (beneficial ownership)

– Equity shifting arrangements with a purchase option once pre-defined performance levels have been reached

Financing Mechanisms

• Advantages of Public-Private Partnerships:

– Reduce the burden placed on public resources

– Increase zone efficiency by allowing them to operate under market mechanisms

– Long term perspective

– Additional capital

– Alternative management and implementation skills

– Value added to the users

– Better identification of needs and optimal use of resources

– Sharing of risk with the public partner

Financing mechanisms

• Build-Operate-Transfer (BOT) concept:

– Private investors receive a concession to finance, build, and operate a facility over a set period of time, in exchange for the right to charge the users of the facility

– At the end of the concession period the facility is turned over to the state

– Advantage: obtain infrastructural facilities with greater efficiency and speed, without the state taking on the financial responsibility

– BOT framework should be based on a clear definition of rights, responsibilities, obligations and commitments of the private and public sector parties


• Key elements of a PPP procurement process include:

– Proactive and reactive identification of opportunities

– Market testing (reaching out to prospective developer groups)

– Clear, unambiguous selection criteria and process

– Agreement structure and tender documentation

– Competitive selection processes

– Pre-qualification to ensure suitable, experienced partners and long-term project success

– Broad stakeholder representation throughout the process


• Regulating authority: NIC

• Managing authority:

– Transferred to a private shareholding company governed by a board of directors, and owned through a 50/50 joint venture partnership between a zone users’ association and the PIC

– In charge of developing the off-site and on-site infrastructure of the investment zone contracts with private companies (BOO)

Management mechanisms

• One-stop shops:

– Automated business process model: provide all approvals and licenses and assist private developers in establishing the zone, and private users in establishing their investments within the zone

– All government entities involved with the investment licenses authorization process represented within each one-stop-shop

– Automated workflow between the entities involved in the process

– Assistance provided to investors through dedicated account executives

Management mechanisms

• NIC strategy:

– Investor driven: open approach to allow investors to make propositions

– Strategy driven: definition of sector priorities such as electricity, housing, and investment zone development

Marketing and promotion activities

• Promotion targeting and costs split between the NIC, investment zone boards and developers:

– NIC:

• General market penetration

• Promotion of the general investment environment in Iraq

• Overview of the various investment opportunities available

– Investment zone boards:

• Promotion of specific sectors and industries present within the zone

• Organization of outward promotion missions in cooperation with NIC

– Private developers:

• Project specific support and information on specific projects

• Concentration on follow-up activities such as closing business deals with prospective investors


• Target priority markets on a sectoral basis and define specific objectives in terms of number of:

– Investors per site

– Services offered

– Critical success factors

– Competitive advantage and unique selling point

– Resources and budget


• Promotional efforts conducted should encompass:

– Promotional material

– Trade fairs (exhibiting or attending)

– Mail-shots

– Market Research (self/commissioned)

– Website design/management

– Public relations/Journalist visits/Press conferences

– Site visit


• Investment zones are temporary or second-best options compared to economy-wide improvements

• Preferable option is a regime providing similar benefits and facilities countrywide

• Zone should demonstrate the benefits of efficient administration and sound infrastructure

• Enable a country to experiment with new administrative procedures or systemic innovations before extending them countrywide

• Vector to promote local businesses

Conclusions and recommendations

• Policies supporting local suppliers (Moran): – Creation of a stable macroeconomic environment with low

inflation rates for locally-owned businesses to operate in

– Reduction or elimination of impediments to operations of local firms through lowering import tariffs and allowing them access to adequate infrastructure (including via investment zones)

– Enlarging the supply of both capital and skilled labor (workers, technicians, engineers, and managers) available to local firms

– Encouraging skilled and experienced zone employees to establish businesses

– Promoting links between zone companies and local trading and educational institutions

Conclusions and recommendations

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