THE WORLD BANK

Speakers:

Jean-Paul Gauthier: Deloitte

Claude Baissac: Eunomix

Angelica Bertoli Lawson: London & Regional (Panama)

Discussant:

Ganesh Rasagam: AFTFP

International Trade Department BBL Series

World Bank, Washington DC, 14 March 2011

1

LESSONS IN SEZ IMPLEMENTATION:

Stories from the trenches

Pet peeves of a Zones Junkie: Behind the Data,

Beyond the Toolkits and Templates

Jean-Paul Gauthier, Esq., Deloitte Consulting LLP

Assistant Secretary Gen., WEPZA

THE WORLD BANK

Jean-Paul’s Pet Peeves

3

• Can you “fix” a small area in a “big, messed-up country”?

• Is just any Zone, anyplace enough?

• Should the Law come first?

• What does it really take to make a Zone a Special Economic Zone?

• Some controversial parting thoughts

THE WORLD BANK

Can you “fix” a small area in a “big, messed-up country”?

4

• Legally, zones are by nature “porous” with areas of shared jurisdiction

• Physically, zones – Do not always have direct access/egress to trade infrastructure– Are “last mile” tools, but require connections to transport and

other public service grids– Serve domestic as well as internal and external markets

• From a capacity perspective, zones are wholly a part of the larger country in which they are located as regards:– Governance– Corruption risk

• Zones work best in cohesive political systems (often, small countries)

• Zones are multiplier tools; “Garbage in = Garbage out”

THE WORLD BANK

Is just any Zone anyplace enough?

5

• Location, location, location… and logistics• Zones form part of an overall economic ecology, with

established logistics infrastructure, patterns and options, distribution nodes, consumption/resource/labor markets, etc.

• In poor-infrastructure environments, the transaction costs of a 50km, 30km or even 15km additional movement can easily outweigh the benefits provided by new serviced plots

• Do not forget the white elephants (Tinapa, IDZs, Most Bangladeshi EPZs, Afghan IPs, Batam in terms of RoI…)

THE WORLD BANK

Should the Law come first?

6

• A zone’s USP depends on the ranking of investment challenges:– in the country– in the broader region

• In Panama Pacifico, a successful Bank-assisted zone project, Labor Law was the No.1 investment constraint but powerful unions could politically at best be persuaded to test innovations in a small lab

• Elsewhere, the No.1 issue may not be an issue which the Law can fix (factor inputs, access, infrastructure, etc.) and the Law may be a guarantor of merely marginal change

• Laws & Regulations with proper “ownership,” that will get implemented, take a long time to prepare and pass

• Laws (and Master-plans!) should not be “designed in a vacuum” –they are purpose-built tools for specific industries, specific companies, specific problems –and should depend on a sound understanding of the business ecology

THE WORLD BANK

What does it really take to make a Zone a Special Economic Zone?

7

“I don’t want a sorta special economic zone, I don’t want a kinda special economic zone, I want a SPECIAL economic zone!”

– Muntasser Okla, Former Head of the Jordan Investment Promotion Corporation (now JIB), Regarding plans for Aqaba SEZ circa 1999

THE WORLD BANK

Jean-Paul’s Check-List

8

• A business case (markets, products, effective demand): A “there, there” vs. “build it and they will come”

• A unique or inspirational vision, and excitement• A long-term view by all stakeholders

– Willingness to get the planning right– 10 years+ of reserves of patience– Commitment to a participative, highly visible, national process– Willingness to relentlessly go back again and again, and refight

lost battles• Clear, high-level political commitment to change at least a

couple of (2+) things that rank at the top of investors’ concerns

• The right site… maybe even the best site• Money (infrastructure costs)• Lobbying

THE WORLD BANK

Case study match-ups

9

Panama Pacifico SEA

Aqaba SEZ Dhaka EZ Tinapa Biz. Park

Botswana Innovation

Hub

Biz. Case √ √ √ X √

Vision √ X √ √ √

L-T Commit √ √ √ X X

High-level Commit

√ √ ? √ X

Commit to 2+ Key Reforms

√ √ √ X X

Right Site √ √ √ X √

Pub. Money √ √ √ √ √

PPD/PR √ √ √ X √

How do Athi River SEZ, N’Sele SEZ, Banjul J22 Gateway match up?

THE WORLD BANK

By the way…

10

• You can have more than one Zone regime in certain circumstances

• The private sector cannot regulate and some Middle-Eastern public zones do pretty well

• Charter Cities are just a theoretical idea to get us thinking but imperialism is of course dead

• China’s SEZs are not really SEZs as the term is used elsewhere

• If One-Stop-Shops are real, they are meaningful• Smart tax incentives are revenue-generating• TTLs should be neither too dogmatic nor too willing to

please their client Governments

THE WORLD BANK

Acknowledgements to some of my “Zones Junkies” mentors

11

• Kishore Rao

• Keith Molkner

• Santosh Hejmadi

• John Arnold

Establishing an SEZ and the purgatory of implementation: perspective from the trenches

Claude Baissac

THE WORLD BANK 13

• Zones work: if they contribute only about 1 % of global employment, they contribute almost 20 % of exports

• In some countries (China, Korea, Mexico, Malaysia, Mauritius, etc.), they have been transformational

• However, our perspective on zones is fundamentally biased by the fact that the world is littered with failed zones – and Africa notably

• We thus derive the mistaken lesson that, on the whole, zones have been an ambivalent policy tool to achieve static economic benefits and encourage broad reforms

THE WORLD BANK 14

• Most zone projects fail to achieve their objectives

• Most of these failures are attributable to human error, versus market forces (in the latter case)

• Most of these human errors occur upstream, in the policy and programmatic phase of projects

THE WORLD BANK 15

• Most of these errors are a direct manifestation of broader political economic realities, and notably: i. State autonomy from vested interests – the ability to

formulate and implement policies that are not aligned with vested interests

ii. Catalytic policy leadership – the presence of policy champions that have enough political clout to see a project through

iii. Administrative capacity - the presence of bureaucracies to transform the policy into a project and deliver its implementation

THE WORLD BANK 16

• The implications of the above are sobering• Indeed, there is ample evidence from the trenches

and from data that zone projects are simply beyond the reach of countries that do not possess the necessary political economic attributes – there is likely to be a strong correlation between state strength and zone success

• The notion that zones would represent an achievable policy options in states where “everything else has failed” is thus problematic

THE WORLD BANK 17

• One of the ways to decrease the risk to zone projects has been to bring in the private sector. It many instance, this is the right thing to do

• But bringing the private sector in will not reduce the risk to projects in more fragile states, because the state still needs to do the needful

• So, there is a bit of a paradox here: the private sector is expected to decrease the burden of the state, but cannot intervene if the state is too fragile

THE WORLD BANK 18

• How do we solve this?• Firstly, we need to recognise upfront, and properly

document, the political economic obstacles that will confront a zone project in so far as strategy, design and implementation are concerned

• Second, we need to determine whether these obstacle can be addressed with a sufficient degree of confidence

• Third, we need to determine whether we have the will, lasting power, and capacity to assist