A special economic zone (SEZ) is an area in a country that is subject to different economic regulations than other regions within the same country. Special Economic Zones have been established in many countries as a mechanism for attracting Foreign Direct Investment (FDI), accelerating industrialization and creating jobs.
When a country or individual conducts business in an SEZ, there are typically additional economic advantages for them, including tax incentives and the opportunity to pay lower tariffs.
China has successfully leveraged SEZs for economic transformation. Initially SEZs were used to experiment with market-oriented economic reforms and build experience before reforms were implemented more widely.
FEATURES OF SUCCESSFUL SEZS:
· Geographically delimited area
· Single management or administrative structure
· Sound physical infrastructure
· Separate and efficient customs provisions
· Streamlined procedures for doing business
· Technology learning, innovation and upgrading
· Clear goals, vigorous benchmarking and competition
· Strong vision and commitment from political and managerial leadership
· Experimental approach, building on success
· Pragmatism, flexibility, autonomy and efficiency of local government/zone management
· Incentives and lack of political interference
· Attractive to FDI and diaspora
· Strong linkages with domestic economy
There are some 5,400 zones across 147 economies since 2019, up from about 4,000 five years ago, and more than 500 new SEZs are in the pipeline. The SEZ boom is part of a new wave of industrial policies and a response to increasing competition for internationally mobile investment.
Most zones offer fiscal incentives, relief from customs duties and tariffs; business-friendly regulations with respect to land access, permits and licenses or employment rules; and administrative streamlining and facilitation. Infrastructure support is another important feature, especially in developing countries where basic infrastructure for business outside these zones can be poor.
SEZs can help attract investment, create jobs and boost exports — both directly and indirectly, where they succeed in building linkages with the broader economy. Zones can also support global value chain (GVC) participation, industrial upgrading and diversification.
Zones are a key investment promotion tool. The advantages of clustering and co-location economies are an important attraction for investors. In many countries, the incentives, infrastructure support and business facilitation in SEZs are meant to compensate for weaknesses in the investment climate. However, zones are neither a precondition nor a guarantee for above-average performance on FDI attraction. Only about half of investment promotion agencies worldwide believe the zones in their country have given a significant boost to FDI attraction.
In many countries, zone programmes account for a major share of exports, particularly manufactured exports. SEZs have been a key component of export diversification efforts in developing countries, and they have been instrumental in improving countries’ participation in GVCs. Trade costs such as tariffs, border taxes and fees, accumulate when intermediate goods are imported, processed and then re-exported in complex GVCs. By lowering such transaction costs, SEZs have become major hubs in GVCs.
Zones are often an effective tool for job creation, particularly for women. The impact of SEZ jobs in countries with high rates of unemployment and underemployment is significant. Especially in the poorest countries, SEZs can be an important avenue to formal employment.
REQUIREMENTS FOR SUCCESSFUL SEZS:
· Legal, Regulatory and Institutional Framework: Establishment and consistent adherence to appropriate overarching framework.
· Business Environment: Streamlined procedures for registration, licensing, trade logistics and customs clearance to reduce costs of doing business.
· Strategic Planning and Demand Driven Approach: SEZs driven by strong business interests and integrated into national development plans.
· Infrastructure: Good, reliable and affordable transport, energy, water, and telecoms services.
· Zone Management and Operations: Understanding of how successful SEZs are management and operated by Government and private sector.
· Ownership and Policy Consistency: Strong, consistent and long-term Government or Private Sector Ownership
· Compensation and Resettlement: Quick and effective resolution of claims due to land acquisition or resettlement.
The new industrial revolution and the digital economy are changing manufacturing industries — the main clients of SEZs. The declining importance of labour costs as a locational determinant for investment will have fundamental implications for SEZs. SEZ development programmes will need to adapt their value propositions to include access to skilled resources, high levels of data connectivity and relevant technology service providers, potentially through partnerships with platform providers. Digital service provision by SEZ operators, e.g. through online single windows for administrative procedures, becomes an increasingly important signal to potential investors. At the strategic level, SEZs may have new opportunities to target digital firms and orient their strategic strengths in logistics facilitation towards the distribution activities in digital value chains. SEZs could also act as incubators and promote clustering and linkages with digital start-ups within and outside their confines.
Source: United Nations UNCTAD World Investment Report
https://unctad.org/webflyer/world-investment-report-2019
Oz leverages Special Economic Zones to connect real world living with digital assets and cryptocurrency. We partner with SEZs, which we call ecozones, to deliver residency and business operations benefits tied to cryptocurrency, as well as a host of different use cases to enhance the development of the ecozone. Our first token, TOTOZ, is a prime example. TOTOZ, a utility token activated by staking, grants residency or business operations benefits to users staking the token in our Oz Wallet, providing privacy protection, regulatory cover for digital asset business operations, zero to near-zero tax business operations and the ability to live and work anywhere in the Philippines with no minimum stay requirements through our partnership with the Freeport Area of Bataan, a SEZ in the Philippines.
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Reference: https://medium.com/@ozliving/what-are-special-economic-zones-d892671be0f0