Special Economic Zones: An Ignored Economic Solution.

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Developing nations wish to be the USA or the China of tomorrow but it needs planning and strategy. Economic development and growth are the targets and funding is needed. Public-Private sector combined growth drive is needed to achieve such targets, and one of the strategy is the use of Special Economic Zones (SEZ). These are regions within a country that have economic laws more liberal than that country’s typical economic laws. They have been used for decades by developing countries to attract investment and serve as enclaves of economic freedom for businesses located within them.

By Tapiwanashe Mangwiro

There are more than 4500 projects taking place in SEZs in 127 countries worldwide with over 72 million jobs directly from these projects and trade related value addition of US$500 billion this is according to the World Bank.

Originating in China in the early 1980’s, SEZ’s have now spread across multiple continents to dozens of countries including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan, the Philippines, Poland, Russia, Ukraine and our very own Zimbabwe. While SEZ’s offer a plethora of relaxed laws and economic advantages to investors, they also provide substantial problems for residents of the communities in which they are located and people who comprise the labour force of SEZ industries. This article seeks to examine the economic, environmental and social impact SEZ’s have on various stakeholders and discuss the current trends in SEZ development that we might need to implement in our own SEZ model.

Special Economic Zones offer many advantages to investors otherwise wary of dealing with an unfamiliar foreign regime. Those advantages include relaxed labour, environmental, registration and land use laws, along with lower taxes, less cumbersome procurement of materials and more streamlined negotiation of projects. By offering tax breaks, reduced bureaucratic interference, and enhanced legal enforcement of property rights, local jurisdictions have been able to create regulatory environments more conducive to business and more attractive to foreign investors. Governments, including that of China, often grant extensive legislative autonomy to the SEZ. For governments struggling to establish modern industrial infrastructure throughout their countries, SEZ’s provide the next best thing that is pockets of excellent infrastructure. Not only do SEZ’s attract industrial development, which inevitably provides manufacturing jobs, but their existence also promotes the development of secondary industries to service firms.

In spite of their seemingly ideal economic backdrops, SEZ’s are not problem free. They raise sustainability issues, as SEZ development is often very rapid while environmental precautions are thin. As more arable land is taken over for urbanization and industrialization, issues related to changes in land use have become a major source of dispute between the public and the government. Protests against land acquisition and deprivation have become a common feature of rural life in China, especially in the provinces of Guangdong, Sichuan, Hebei, and Henan province. Guangdong has been affected more severely than the other provinces.

Using China as a case study, in many SEZ’s, social problems such as the exploitation of the working class, trump their environmental counterparts. The urban residents of China’s Shenzen SEZ resent and blame migrants for social problems related to the massive influx of people into the city. Shenzhen’s burgeoning population and the large portion of transient residents, is causing headaches for city planners. While both the central and local governments have recognized the indispensable contribution of migrant labour, so far government policy (as of 2002) has provided migrant labourers few protections.

Along with urban residents upset over the impact of SEZ’s, rural farmers show resentment over the loss of farmland, corruption, worsening pollution and arbitrary evictions by property developers. SEZs have been implemented using a variety of institutional structures across the world ranging from fully public (government operator, government developer, government regulator) to “fully” private (private operator, private developer, public regulator).

The high turnover of migrant workers, coupled with a large percentage of the workers being women, often results in prostitution. The Chinese government’s response to solving this problem often results in violence and human rights violations. In 2006, thousands of armed police were deployed to quell a protest by 3,000 people who were left without jobs after the closure of massage parlours and discos in Shenzhen. That same year authorities put approximately 100 women and men arrested in connection with prostitution on display in the middle of a major intersection for public humiliation.

In conclusion devolution will compliment such efforts to be a success as this encourages decentralisation in company registry and tax clearance processes as well. This gives provincial administrations the power to vet companies quickly than letting it be centralised. These are some of the hidden benefits of SEZs that as an economy we can benefit from. The concept of SEZs has successfully created innovation opportunities and development. However, it is important to plan it carefully to integrate the SEZ with the local population, the sociocultural fabric, local needs, local administration and the environment for optimum outcomes. I hope that the SEZs will be of benefit to the locals and the country at large as it will drive up production and reduce unemployment.

Tapiwanashe W Mangwiro is a researcher and an economist writing in his own capacity, for feedback you can contact him on mangwirowt@gmail.com

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