Special Economic Zones (“SEZs) are broadly defined as regions within a country where the economic laws are far more liberal than what applies under the country’s general economic laws. It is an umbrella term that covers Free Trade Zones, Free Ports, Export Processing Zones, among others. The United Nations Conference on Trade and Development (UNCTAD) stated that as of 2019, 147 countries had different forms of SEZs and the total number of SEZs globally is over 5,400.
Developing countries set up SEZs in a bid to attract foreign investment and to also serve as substantially economic-freedom enclaves for businesses that are set up in the SEZs. Usually, countries around the world implement various institutional structures in setting up SEZs. This varies from fully public i.e. operated, developed, and regulated by the Government to fully private, i.e. operated and developed by private entities with the government as the regulator.
SEZs have their advantages as well as their disadvantages. In this piece, we focus on the general advantages of SEZs.
Benefits of special economic zones
● SEZs offer a plethora of advantages to investors looking to set up in an unfamiliar foreign country. By setting up in a Special economic zone, they have access to relaxed labor, registration, and land use laws. SEZs also offers a more relaxed regulatory environment and this increases the overall ease of doing business.
● Tax incentives in form of tax breaks, tax waivers, etc. are usually characteristic of SEZs. There is usually a reduced bureaucratic interference which is more attractive to foreign investors and this ultimately attracts more foreign investment.
● Special Economic Zones attract industrial development to developing countries. In addition, they provide manufacturing jobs and also promote the development of secondary industries established to service the businesses.
● SEZs help to promote exportation and export diversification from traditional to non-traditional exports. It gives developing countries an opportunity to diversify their exports and this development can help to reduce export instability in these countries. It also has the potential to help intensify and accelerate the economic growth of the country.
● SEZs help to increase foreign exchange earnings for countries.
● They help to create employment both direct and indirect employment opportunities. Thus, the benefit for states that host successful SEZs can be seen in the creation of thousands of jobs with the development of capabilities of the local workforce where foreigners share their expertise and technical know-how.
● The preferential economic regulations and incentives are available to enterprises operating in SEZs to help them lower their operating costs. The businesses are also often insulated from some of the costs borne by businesses operating under the country’s general economic laws.
● SEZs can also serve as testing grounds for the Government when they are seeking to implement business policies. With this, they can determine if the policies are successful and decide to adopt them nationwide. In cases where they are not, the policies can be discarded.
Written by Modupe Ojo
