Special economic zones have been hit hard by Covid-19 and changes in attitudes to incentives. So how can they prosper in the future? Douglas van den Berghe offers a model to answer this question.
The UN Conference on Trade and Development’s 2019 World Investment Report estimated that between 2014 and 2018, the number of special economic zones (SEZs) worldwide increased by 26% to around 5,400. More than 140 countries, which include almost 75% of all developing economies and almost all transitioning economies, are home to some form of zone. In addition, more than 500 zones are currently in the pipeline – either being developed or developed but not yet operational.
The type of zones and the objectives that a government would like to achieve through the zones depend on the state of the respective country’s economy. Many traditional SEZs – especially in China – focused on attracting FDI for export-led manufacturing activities and provided logistical support and incentives in the form of export and import duty exemptions. Today, there is a diverse landscape of SEZs around the world. However, most SEZs still focus on trade, logistics and inward FDI, with a few exceptions. In the United Arab Emirates, for instance, SEZs have been fundamental in the transition and diversification of the economy.