My random, well maybe not so random, thoughts on Special Economic Zones
Excited about SEZs: The nerd meets the lawyer
Maybe its the nerd, sorry, I mean lawyer in me that gets so excited to talk about Special Economic Zone development models….its all about structuring the deal.
On a personal note the development of Jamaica’s Special Economic Zone Regime has not only been an interesting one but professionally truly gratifying having participated in its development from day one -authoring the initial concept paper, assisting with the drafting of the SEZ policy, the law, the Regulations and now the implementation and operationalization of the Jamaica’s Special Economic Zone Authority.
Moving the country forward
However SEZs are not a magic bullet
However, they are proven tools, if implemented correctly, to rapidly diversify a country’s industrial base, attract foreign direct investment (FDI), increase job creation and improve economic growth.
They come in a variety of forms
SEZs come in a variety of forms, names and functions — Free Trade Zones, Free Zones, Export Processing Zones, Enterprise Zones, etc. — that reflect a government’s priorities and positioning of its economy. However, what unifies them all is that they are development tools used by governments to attract, and facilitate investments that act as catalysts to diversify whole or targeted segments of their economies.
What is new is old and what is old is new
The name change from Free Zone to SEZ is not a simple matter of form over substance. The SEZ concept is a deliberate policy break away from past policy and is intended to send a clear signal to the investor community (domestic and international); the multilateral lending agencies; and the WTO that Jamaica is moving in a new policy direction.
The shift to the private sector
Greater involvement of the private sector in the development of zones reduces the burden placed on public resources and increases the efficiency of zones by allowing them to operate under market mechanisms.
Connecting Jamaica to the world
The SEZs facilitate Jamaica’s the inter-connectivity to the rest of the world, allowing for the freer movement of goods, services, people, capital and data.
SEZ should be viewed as export platforms for local businesses that facilitate the reduction of the associated logistics, transport and administrative costs of trading across borders. The SEZs while physically located in Jamaica are an ‘international space’ and are a captive export market for local producers to engage global value chains without leaving the geographic boundaries of Jamaica.
This increased participation or value addition may come in a variety of forms that would see Jamaica and her people expanding their skills and expertise in research and development, design, production, logistics, marketing or services, etc. in a range of industries. For Jamaica, much like China, special economic zones, are a ‘special’ vehicle to increase its participation in the global economy.
The Impact on the wider economy
The real value of economic zones depends on their ability to stimulate widespread growth through linkages with the domestic economy and to catalyze nationwide reforms by serving as pilots.
Linkages are critical
One of the great development effects of SEZs are their spill-over effects into the rest of the economy.
However, for these impacts to be meaningful and sustainable forward and backward linkages have to be forged by deliberate policy direction and actions. Jamaica’s SEZ policy and law recognize this fact and have created several mechanisms, particularly aimed at small businesses, to accomplish this.
Soft infrastructure doesn’t get the headlines but get it right and it gets the job done Click To Tweet
The laws that the zones operate under, just like the physical infrastructure, have to be adequate and appropriate — fit for purpose. This is much more than just cutting red-tape but it’s about bureaucracies being facilitators and delivering government services as value additions. Investors must have confidence that it is easy to invest, their investment is safe and the operations of their investment will not be compromised by excessive red-tape.
Using government services as incentives
As such Jamaica’s SEZs will be focused less on fiscal incentives and more on providing a platform to meet the efficiencies demanded by the global marketplace. Central to this are the ‘soft’ incentives inherent in regulatory relief such as expedited investment, construction, work permit approvals, and streamlined and efficient Customs inspection. The move to place greater reliance on business and trade facilitation reflects not only international best practice but also reflect a growing global trend of governments using their regulatory functions as services to investors, in effect non-fiscal incentives.
Jamaica has gone further and followed global best practice and included performance based mechanism such as employment tax credits for job creation
Effective administration: the Special Economic Zone Authority
The efficient and effective administration of the SEZ regulatory environment is a self-evident, yet often understated success factor for SEZs. This goes beyond attracting and facilitating investments, as important as that is, into due diligence, long term assessment, planning and on-going monitoring of investors and their investments to ensure that they align to the country’s goals and policy priorities. In its Special Economic Zone Authority, Jamaica much like China has created a mechanism to do just that.
The physical matters as well; on and off-site infrastructure
One of the most critical factors that contribute to the success or failure of zones is availability and integration of adequate and appropriate infrastructure inside and outside of a zone. This infrastructure — land, sea, air or technology — must not only be fit for purpose but must be networked together to create value for stakeholders (workers, government, investors, etc.).
This journey has been a case of adopt and adapt what works to Jamaica’s specific circumstances (social, economic , legal, etc ) and one of alignment with Jamaica’s vision of itself as a global logistics hub.
Special Economic Zones are therefore the primary economic drivers and job creators within the Jamaican Global Logistics Hub.
Build it and they will come
Ships and planes need a reason to stop in Jamaica; it is not simply case of ‘build it and they will come.
Build it and they will really come
Jamaica’s ports and airport will serve as facilitation mechanisms for cargo and people flows coming in and out of the SEZs.
Why are SEZs so important to Jamaica?
If Jamaica is to develop/grow its economy and provide prosperity for its people it needs to enhance its existing offerings but more importantly it needs to move beyond them and provide a suite of SEZ clusters through which cargo, people and data can flow seamlessly.
Call to Action
What to learn more about economic development, trade, investment and job creation aspects of Special Economic Zones generally and SEZ development in Jamaica? Please follow this blog. Also stay tuned for my new ebook on Special Economic Zones development in Jamaica coming soon.
Originally published at www.commerciallawinternational.com on September 15, 2017.