How effective are Special Economic Zones during a time of crisis?

Our webinar brought together global Special Economic Zone (SEZ) experts to discuss how cities can secure financial investment.

Shenzhen Skyline, China

I was joined by event panellists:

  • Dr Dragan Kostic President, District Chamber of Economy Pirot, Republic of Serbia
  • Ahmed Bin Sulayem, Executive Chairman and Chief Executive Officer, DMCC (Dubai Multi Commodities Centre)
  • Ahmad Al Haddad Chief Operating Officer, Parks & Zones, DP World, UAE Region
  • Gustavo Gonzalez De Vega President, Association of Free Zones of the Americas (AZFA).

The panellists discussed the advantages of SEZs, how SEZs are innovating to attract new business and what they are doing to help solve the crisis in economic terms.

SEZs contribute to the growth and development of an economy by attracting foreign investments, creating jobs and boosting exports. These contributions can be both direct and indirect when they succeed in building linkages with the broader economy.

They also support Global Value Chain (GVC) participation, industrial upgrading and diversification. In 2020, there are approximately 5,400 zones across 147 economies – a figure that has risen by 1,400 within five years. An additional 500 new SEZs are in the pipeline.

However, the current Covid-19 pandemic has led to a reduction in many SEZ activities in Southern Europe. As well as the broadening of previously SEZ-specific financial incentives to all businesses to help them recover from the short-term economic shock. Given the rise of digitalisation, zones need to adapt and innovate to attract further investments and demands, which makes the process of setting up a business simpler and faster.

66% of participants in a public poll conducted for the event agreed that the future role of SEZs to support economic growth has changed as a result of the Covid-19 pandemic, with half saying that they can adapt to support disrupted supply chains.

This feedback, along with the points raised by the panellists, indicates that SEZs are well placed to adapt to new operational structures, new supply chains and new markets. This is due to their inherent structure to facilitate and incentivise business.

The pandemic has also revealed several interesting trends, namely a transition from global to regional value chains and a significant reduction in global FDI and trade. This may result in the shift towards nationalism, a transition that 17% of poll participants agreed SEZs can support. SEZs provide the necessary infrastructure and scale to nationalise manufacturing which could otherwise be very expensive, time consuming and non-competitive outside this regime.

Ahmed Bin Sulayem highlighted the need for a tailored approach via marketing or incentives to support the post-crisis recovery. 34% of poll participants agreed that more tailored incentives are required to attract and retain investors.

The World Towers Mumbai
The World Towers, Mumbai, India
Image: Lodha Group

Policymakers should be ready and willing to adapt as new situations present themselves. Marketing that is directed at sectors the SEZ wants to attract is highly important. Nearly one in five of poll participants have increased, or are considering increasing, their marketing in a bid to attract investment during the pandemic.

Gustavo Gonzalez De Vega stressed the importance of digitisation and the likelihood of a fourth Industrial Revolution post-pandemic. Zones operators and tenants with better ICT infrastructure and services are adapting to the disruption more efficiently. Again, the role of incentives is crucial here. There is a greater need for non-traditional incentives such as cyber security and improved digital infrastructure such as 3D printing.

Dragan Kostic stated that SEZs are better suited to provide services that governments would struggle to provide. These include health and wellbeing safety (e.g. pandemic protection), economic safety (e.g. reduce service fees/ zone rents) and cooperation with the state and the zones (e.g. offer both state and zone incentives in the same place).

Ahmad Al Haddad reminded us all that innovation is your best ally during uncertain times. Innovation can be supported with better zone partnerships, providing more tailored incentives and offering after care (not just to attract investors). Cooperation between free zones can deliver benefits for customers. For instance, receiving a service from another zone without registering and adding value for economies and zone investors.

In summary, the future role of the SEZ has changed as a result of the Covid-19 crisis. It is important for policymakers to prepare post-crisis measures and put attractive conditions in place now to support businesses and new investment.

Most of the questions raised by the participants were in relation to attracting and retaining investors. Since SEZs are built around this principle it was comforting to hear advice and best practice experience from the speakers. As ever, innovation (be that digitalisation or creative ideas that go beyond traditional financial incentives) that maintains strong business relationships are key to ensuring the future success of SEZs globally.

It is essential to listen to your customers as the innovation starts with your existing customers and is a way to improve the conditions for future tenants.

Ahmad Al Haddad, Chief Operating Officer, Parks & Zones, DP World, UAE Region

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