CIIP

Special Economic Zones

Impact and Vulnerabilities

CIIP

Definitions of Special Economic Zones

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DEFINITION:

• For the purpose of the empirical analysis, the definition of SEZs:

o Includes - Traditional and Hybrid EPZs, Freeport/ SEZ, and Enterprise Zones

o Does not include – Free Trade Zones, Free Enterprises, Technological and Science Parks

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The popularity of SEZs has boomed since the 90s

0

500

1000

1500

2000

2500

3000

3500

4000

1975 1986 2006

Number of Special Economic Zones

World

0

20

40

60

80

100

120

140

1975 1986 2006

Number of Countries with Special Economic Zones

World

Source: FIAS (2007)

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CIIP

SEZ Performance

SEZ Program

Incentives Package

• Fiscal and non fiscal

Requirements

• Investment requirement

• Ownership requirement

Program characteristics

• Independence of regulator

• Time of program establishment

SEZ Characteristics

• Maturity

• Size

• Operator

• Location

• Industry focus

• Infrastructure

• Services offered

Contextual Factors

National and Regional

• Institutional quality/ Rule of Law

• Access/ proximity to markets

• Income level

• Human Capital

• Population Density

Collecting through desk research, emails and follow up phone calls

The conceptual framework

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Nightlights as proxy for SEZ performance

CIIP

237 SEZs in 17 countries – 5 more countries are to be added

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Included

Being added

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Findings from the data base

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SEZs are largest in SSA and ECAPrivate SEZs are most common in LAC, while

public involvement is higher in Asia & SSA

0%10%20%30%40%50%60%70%80%90%

100%

SSA LAC EAP ECA SA

Public PPP Private

308

117

204

343

112

0

50

100

150

200

250

300

350

400

SSA LAC EAP ECA SA

Zone operator% of SEZs

Average size In ha

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Findings from the data base

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Independent regulators exist across all regions, but are less frequent in SSA, LAC & EAP

Corporate tax exemptions are most generous in SSA, LAC and South Asia

12,513,2

9,8

4,1

14,6

0

2

4

6

8

10

12

14

16

SSA LAC EAP ECA SA

0%10%20%30%40%50%60%70%80%90%

100%

SSA LAC EAP ECA SA

Independent Not independent

Corporate tax exemption Average number of years with 100% exemption

Independence of zone regulator% of countries

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30

103 104

Shrinking Stable Growing

SEZ grew on average by 9.9%, but there is a large variability in SEZ performance across zones

SEZ performance 2007 - 2012

Number of SEZs

SEZ performance 2007 – 2012: Average growth of 9.9% across SEZs, but median growth of only 2.4% and

standard deviation of 21% suggest large spread in performance

CIIP

Strongest growth in SSA and ECA, but performing and non-performing zones can be found in all regions

80%61%

31%

67% 64%

20%

26%

54%

31%

13% 15%2%

36%

0%10%20%30%40%50%60%70%80%90%

100%

SSA LAC EAP ECA SA

SEZ Performance by region

Growing Stable Shrinking

+17% +11% +6% +22% -1%Average growth

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Few program and SEZ characteristics are systematically correlated with SEZ performance

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Contextual factorsSEZ program SEZ characteristics

Subsidized utilities

Differentiated labour regulations

Corporate tax exemption in wealthier regions

National one-stop-shop

Foreign ownership requirement

Minimum Investment Requirement

Independence of zone regulator

Time policy introduced

Years in operation

Type of operator

Focus on high-tech

Size

Distance Port

Distance largest city

One-stop-shop onsite

Power sub-station onsite

Proximity to large markets

Regional GDP per capita

Regional educational level

Control of corruption

Regional population density

Pre-exiting industrial base

Positive impact Negative impact No correlation

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Findings from the analytical work

• SEZ performance is highly context dependent – zone and program characteristics that may work in one context, may not in others. There are is still some common themes:

• Contextual factors play a major role

o Investors are looking for cheap locations

o With proximity to large markets and ideally a proven track record of industrial production

• Zone specific

o Growth is difficult to sustain over time SEZ programs can help to make an economy more dynamic in the short/ mid-term.

o Upgrading the technological component or value-added through SEZs is challenging

• Program specific

o Utility subsidies most incisive part of incentive packages.

o Corporate tax breaks only seems to make a difference in more developed countries.

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Thank You