Private Sector Investments in Economic Zones Development

Key Mechanisms and International Trends

Part 1

Bakkar Ali Maasher

Business Development Division

About ICD

• Multilateral financial institution established in November 1999 as the

private sector development arm of IDB Group

• Authorized capital: US$ 2 billion

• Membership: 45 member countries and 5 public financial

institutions.

• Total projects approved over 142 with 120 active and completed

projects, in more than 28 member countries

• Areas: Islamic Finance and development focused economic sectors

ICD Objectives

• Provide innovative financial products and services to the

Private Sector with high growth potential and development

effectiveness

• Encourage the development of Islamic Finance industry and

capital markets in member countries

• Advise governments and private sector entities

• Facilitate cross border business and investments

• Support SME capacity development and entrepreneurship

Operations by Region

MENA77%

South Asia7%

South East Asia2%

Sub-Sahara14%

Operations by Sector

Approved Project by Sector as at January 2009

Industrial28.54%

Financial21.93%

Transportation10.95%

Real estate16.73%

Oil & Gas4.77%

Telecom5.84%

Health care4.07%

Technology1.80%

Education1.29%

Construction0.43%

Pharmaceutical3.03%

A broad definition for Zones

Special Economic Zone (SEZ)

• a geographical delimited area that has economic laws more liberal

than a country's typical economic laws.

• eligibility for benefits based upon physical location within the zone

• has single management / administration

• usually has separate customers area and streamlined procedures

• Some evolve into highly specialized facilities configured to the

needs of specific industries and activities.

Types of zones are also broad

Source: SPECIAL ECONOMIC ZONES , FIAS Report, April 2008

• Free trade zones (FTZs).

• Export processing zones.

• Hybrid EPZs.

• Enterprise zones.

• Free-ports.

• Specialized zones.

• Single factory EPZ schemes

Economic drivers for Zones Development

• Part of a wider economic reform to stimulate exports

• To alleviate growing unemployment pressures

• To pilot new policies and approaches in a controlled

environment

• To enhance competitiveness of manufactures and service

providers through the agglomeration effect

• To attract foreign direct investments

• To provide for “common infrastructure” efficiencies

Trends in Zones Developments

• Shift from pure export processing toward more emphasize on integrating

zones into the domestic economy

• New zone development projects are increasingly treated like any other large

scale real estate development project

• Expansion for zone activities from pure industrial to include more

commercial and professional services

• More incentives to attract private sector developers and operators

• Privatization of services provided to tenants including utilities provision,

tailored facilities development and value added professional services

Success factors for effective private sector involvement

• Reduced unfair competition between public and private

zones. Subsidization should focus on SMEs zones

• Unbundled regulatory, development and operational roles

• Effective PPP models for zone development projects

• Integrated approach to infrastructure provision

Private Sector role is key !

• “On the whole, privately operated zones tend to offer

better facilities and amenities, command higher prices

from tenants and attract “higher end” types of

activities. As a result, private zones generally have

been more profitable and have had better social and

environmental track records than public zones

throughout the world (with East Asian government-run

zones the notable exception).”

Source: SPECIAL ECONOMIC ZONES , FIAS Report, April 2008