Unctad’s World Investment Report highlights 1400 SEZs built in the past five years, but not all have lived up to expectations. Alex Irwin-Hunt reports.

Special economic zones (SEZs) have ballooned across the globe in recent years, growing in number to nearly 5400, up from 4000 five years ago, according to Unctad’s World Investment Report (WIR).

SEZs, which are industrial zones that offer fiscal incentives and streamlined regulation to attract FDI, are now found in more than 145 countries across the globe, with another 500 zones in the pipeline.

The proliferation of SEZs has been driven by numerous factors including industrial policies, fierce competition for internationally mobile investment and countries catering to a changing global economy.

“At least 101 countries have industrial policies, of which 80% were formulated over the past five years. We call them the new generation of industrial policies. Special economic zones are one of the major means of achieving industrial policy goals,” Dr James Zhan, lead author of the report, told fDi.

In line with new industrial policies, some SEZs have shifted their focus away from manufacturing, remodelling themselves to attract investments from new industries, such as hi-tech, financial services and tourism.

SEZs struggle

However, despite the proliferation of SEZs, many have failed to meet the expectations of policy-makers, because they have not attracted the anticipated level of investment.

“There are many examples of SEZs that have played a key role in transforming economies, promoting greater participation in global value chains and catalysing industrial upgrading. But for every success story there are multiple zones that did not attract the anticipated influx of investors, with some becoming costly failures,” said Unctad secretary-general Mukhisa Kituyi.

This failure can be attributed to a number of factors including the use of SEZs as piloting zones for the rest of the economy, the erosion of SEZ privileges relative to the rest of the country and the operational design of the zones themselves.

“There are also key emerging challenges and opportunities such as sustainable development imperatives, new industrialisation and digital transformation, and restructuring of global value chains,” Mr Zhan told fDi.

Given the underperformance of the majority of SEZs, Unctad’s WIR outlines a framework to tackle the main challenges, so “that international organisations can advise countries and provide technical assistance to help evaluate the results, and build a new generation of special economic zones for sustainable development,” added Mr Zhan.

Given numerous challenges, regional development zones spanning two or three countries are also emerging – such as the new cross-border zone comprising Burkina Faso, Côte d’Ivoire and Mali – as SEZs become a means to co-operate towards sustainable economic development.

This article is sourced from fDi Magazine
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