tag:theconversation.com,2011:/uk/topics/special-economic-zones-19941/articlesSpecial Economic Zones – The Conversation2023-05-21T10:11:03Ztag:theconversation.com,2011:article/2040602023-05-21T10:11:03Z2023-05-21T10:11:03ZGrand infrastructure projects aren’t a magic bullet for industrial development – insights from Ghana and Kenya<figure><img src="https://images.theconversation.com/files/522146/original/file-20230420-201-3jeqjy.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Kenya Lamu Port Project</span> </figcaption></figure><p>The African Union’s flagship <a href="https://au.int/en/agenda2063/overview">Agenda 2063</a> initiative prioritises <a href="https://au.int/en/infrastructure-energy-development">large-scale infrastructure development</a> and promises to “link the continent by rail, road, sea and air”. </p>
<p>This is being undertaken in parallel with efforts to improve economic integration. In 2021, the 54 countries on the continent made history when they began trading within the <a href="https://au-afcfta.org/about/">African Continental Free Trade Area</a>. It is the largest free trade area in the world.</p>
<p>Proponents of an approach to development that focuses on <a href="https://www.tandfonline.com/doi/full/10.1080/00343404.2019.1661984">infrastructure</a> claim that improving connectivity will foster industrialisation and planned urbanisation. It gives policy makers tools to create well-planned urban regions that can compete in the global economy and attract foreign direct investment. These, in turn, will foster industrial growth. </p>
<p>The argument goes that setting up <a href="https://www.tandfonline.com/doi/full/10.1080/21622671.2022.2092205">development corridors</a>, <a href="https://elibrary.worldbank.org/doi/abs/10.1596/978-0-8213-8638-5">special economic zones</a>, ‘<a href="https://journals.sagepub.com/doi/10.1177/0042098018793032">new cities</a>,’ and drawing up <a href="https://journals.sagepub.com/doi/full/10.1177/0308518X18763370">city master plans</a> will lead to the development of urban spaces that can be ‘plugged in’ to global production networks. This will boost the productivity and competitiveness of African industry. Ultimately African countries will export more high-value manufactured goods rather than natural resources and unprocessed agriculture commodities.</p>
<p><a href="https://www.tandfonline.com/doi/abs/10.1080/03056244.2023.2171284">Our research</a> calls these claims into question. We assessed the impact of transnational development corridor projects in Kenya and Ghana. We found that in both cases, improved connectivity failed to catalyse industrialisation. Instead, it encouraged land speculation as it opened up new spaces to real estate investment.</p>
<p>This is a problem. Failure to trigger industrial growth risks locking Africa into the global economy as an <a href="https://www.tandfonline.com/doi/abs/10.1080/03056244.2015.1084911">exporter of raw materials</a>. On top of this, cities without industry have <a href="https://link.springer.com/article/10.1007/s10887-015-9121-4">higher levels of inequality</a> than their more industrialised counterparts. </p>
<p>We concluded that infrastructure that links mines to ports isn’t enough. It needs to be accompanied by policies that discourage speculation in land, and encourage productive investment in factories that can process raw materials and provide jobs to the continent’s young urban workforce.</p>
<h2>Infrastructure-led development in Africa</h2>
<p>Poor quality infrastructure is a <a href="https://www.tandfonline.com/doi/full/10.1080/00343404.2019.1661984">legacy of neoliberal structural adjustment </a> programmes imposed on African countries by the International Monetary Fund in the 1980s and 1990s. Governments that received these loans were largely prohibited from investing in infrastructure. But private investors showed little interest in building large-scale transnational logistics and energy infrastructure.</p>
<p>The <a href="https://corporatefinanceinstitute.com/resources/economics/2008-2009-global-financial-crisis/">2008 financial crisis</a> changed everything. Many governments responded by <a href="https://www.sciencedirect.com/science/article/pii/S0305750X19300713">reintroducing national development planning</a>. These included <a href="https://www.tandfonline.com/doi/full/10.1080/13563467.2022.2091534">large-scale infrastructure projects</a>. These projects could be financed because low interest rates in advanced-industrial countries meant that borrowing was cheap. </p>
<p>By 2018 <a href="https://www.sciencedirect.com/science/article/pii/S0016718517303299?via%3Dihub">more than 50 development corridors</a> were in various stages of construction across Africa. Many governments were fully committed to infrastructure-led development. Transportation networks and energy grids were expanded at break-neck speed in a <a href="https://www.tandfonline.com/doi/full/10.1080/23792949.2022.2115933">continental competition</a>.</p>
<h2>Case study 1: Ghana</h2>
<p>The <a href="https://highwayabb.ecowas.int/about-the-project/">Abidjan–Lagos Corridor</a> is a project to build a transnational six-lane highway connecting Ghana’s capital, Accra, to Abidjan, Lome, Cotonou and Lagos. </p>
<p>The project was launched in 2014 by the <a href="https://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/Multinational_-_Approved_-_Study_for_the_Abidjan-_Lagos_Corridor_Highway_Development_Project.pdf">Economic Community of West African States</a> with the support of the African Development Bank and African Union. More than 50% of the corridor traverses Ghanaian territory.</p>
<p>The initiative enjoys broad political support in Ghana. Through his <a href="https://www.trade.gov/market-intelligence/ghana-one-district-one-factor-1d1f-initiative">One District One Factory policy</a>, President Nana Akufo-Addo of the National Patriotic Party has sought to support industrialisation across a range of economic sectors, from textiles to pharmaceuticals. He has <a href="https://www.ghanaweb.com/GhanaHomePage/business/Establish-a-management-authority-to-fast-track-implementation-of-Abidjan-Lagos-Corridor-Dev-t-Project-Akufo-Addo-790926">fast-tracked the Corridor project</a> and lobbied to host the management authority of the project. </p>
<p>The highway is the cornerstone of a rapidly urbanising West African ‘<a href="https://www.elgaronline.com/display/edcoll/9781788972697/9781788972697.00021.xml">megacity region</a>’. Real estate projects range from a <a href="https://www.tandfonline.com/doi/full/10.1080/13563475.2019.1664896">planned new city 50km from Accra</a> to unplanned <a href="https://journals.sagepub.com/doi/abs/10.1177/0042098019851949">urban sprawl</a> that extends throughout the corridor.</p>
<p>The corridor has not significantly boosted Ghanaian industrial capacity. <a href="https://stat.unido.org/sdg/GHA">According to UNIDO data</a>, manufacturing accounted for 14% of Ghana’s GDP in 2008. By 2022 this figure had shrunk to a mere 11.8%. It has, however, created opportunities for real estate speculation.</p>
<h2>Case study 2: Kenya</h2>
<p>We found similar results in Kenya. In 2008 the government launched <a href="https://vision2030.go.ke/">Kenya Vision 2030</a>. This targeted a number of key <a href="https://www.tralac.org/images/docs/8097/kenyas-industrial-transformation-programme-2015.pdf">economic sectors</a>. Agro-processing, textiles, leather and construction materials are some of these. The hope was that it would nearly double manufacturing’s share of gross domestic product.</p>
<p>The Kenyan Government went on an infrastructure spending spree. By 2019 Kenya was undertaking more large-scale infrastructure projects than almost <a href="https://www2.deloitte.com/za/en/pages/energy-and-resources/articles/africa-construction-trends.html">any other country in Africa</a>.</p>
<p>Many of these projects are included in the <a href="https://www.lapsset.go.ke/">Lamu Port–South Sudan–Ethiopia Transport Corridor</a>. This is designed to integrate northern Kenya and its surrounding borderlands into a transnational region that boasts world class logistics infrastructure. In addition, the <a href="http://ke.china-embassy.gov.cn/eng/zxyw/201910/t20191028_6817952.htm">Standard Gauge Railway</a> was built to link Mombasa and Nairobi, while a series of road projects around Nairobi were designed to decongest the city centre.</p>
<p>But Kenya’s manufacturing sector has generally disappointed. <a href="https://stat.unido.org/sdg/KEN">According to UNIDO</a> manufacturing value added as a proportion of GDP decreased from 11.8% in 2008 to a 8.9% in 2022.</p>
<p>The infrastructure boom has, however, accelerated urban sprawl and speculation. Investors have rushed in to secure land adjacent to new projects in <a href="https://dlci-hoa.org/assets/upload/investment-in-the-dry-lands-documents/20200804041053648.pdf">Isiolo and Lamu</a>. North of Nairobi, the Thika Superhighway has catalysed a peri-urban real estate boom. For example, international developer Rendeavour is building a <a href="https://www.rendeavour.com/projects/tatu-city/">new city</a> with state-of-the-art amenities for 150,000 residents. </p>
<p>Elsewhere along the highway local landlords have built high-rise tenements to capitalise on the <a href="https://www.iied.org/sites/default/files/pdfs/migrate/10876IIED.pdf">booming low-end rental market</a>.</p>
<h2>What must be done?</h2>
<p>Our findings do not rule out the possibility that infrastructure-led development could drive industrialisation in the future. But they suggest that it must be accompanied by policy that discourages speculation in land and real estate.</p>
<p>Currently, property in many African cities is not taxed, so many elites consider it the ‘<a href="https://onlinelibrary.wiley.com/doi/full/10.1111/1468-2427.12550">safest bet</a>.’ Levying taxes on property would discourage speculation and generate revenue that could be used for public spending. This approach has <a href="https://www.wiley.com/en-gb/Urban+Land+Rent%3A+Singapore+as+a+Property+State-p-9781118827659">worked in East Asian countries</a> that have successfully achieved industrial transformation. </p>
<p>Without this, infrastructure-led development is likely to contribute to further <a href="https://link.springer.com/article/10.1007/s10887-015-9121-4">urbanisation without industrialisation</a>. African governments will be unlikely to achieve their industrial objectives, and remain dependent on exporting natural resources and agricultural goods.</p><img src="https://counter.theconversation.com/content/204060/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Seth Schindler received funding from the Economic and Social Research Council. </span></em></p><p class="fine-print"><em><span>Tom Gillespie received funding from a University of Manchester Hallsworth Research Fellowship and the UK Foreign, Commonwealth and Development Office-funded African Cities Research Consortium. </span></em></p>Infrastructure that links mines to ports isn’t enough – it needs to be accompanied by policies that encourage productive investment in factories.Seth Schindler, Senior Lecturer in Urban Development & Transformation, University of ManchesterTom Gillespie, Lecturer in Global Urban Development, University of ManchesterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1725282022-01-10T13:28:26Z2022-01-10T13:28:26ZWhen industrial policy meets African political realities: lessons from Uganda<figure><img src="https://images.theconversation.com/files/434436/original/file-20211129-59784-4arr5e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tasting coffee at the Good African Coffee company's factory, in Kampala, Uganda.
</span> <span class="attribution"><span class="source">Photo by Jonathan Torgovnik/Getty Images</span></span></figcaption></figure><p>Since the 2008/2009 <a href="https://www.rba.gov.au/education/resources/explainers/the-global-financial-crisis.html">global financial crisis</a>, industrial policy has been widely celebrated as having become fashionable again. <a href="https://www8.gsb.columbia.edu/faculty/jstiglitz/bio">Joseph Stiglitz</a>, <a href="https://www.nse.pku.edu.cn/en/people/professor/245722.htm">Justin Yifu Lin</a> and <a href="https://www.hks.harvard.edu/faculty/celestin-monga">Célestin Monga</a> <a href="https://openknowledge.worldbank.org/handle/10986/16845">argued</a> in 2013 that governments around the world were increasingly protecting industries to diversify their economies, heralding the rise of industrial policy globally.</p>
<p>There has also been a proliferation of research on industrial policy in Africa over the past decade. This ranges from <a href="https://www.cambridge.org/core/books/politics-of-african-industrial-policy/7409DC1019622B1F87C05B47E40345D4">comparative</a> to single-country case studies.</p>
<p>One focus of the research has been on political constraints to industrial policy, placing the blame on a singular villain: <a href="https://www.jstor.org/stable/1808883">government corruption</a>. This frames politics as ‘evil’, with the policies rarely at fault. Yet, <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/jid.3375?casa_token=HUxkpvt6tV4AAAAA:nF2CgtmuRng3jycFqiJEvi-hASwfgziNB2yIwHUB8djL6shrwrT2s3DRel8yREeNk3I2oGCvQY5n21Zx">experiences </a> of all successful late industrialisers tell us that experimentation with policies, rather than replication, resulted in better outcomes.</p>
<p>There remains debate whether the ‘new’ industrial policy should be market-conforming or market-defying. <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-7679.2009.00456.x?casa_token=Bq58cEfbUhIAAAAA:a2rjedUwIIvnV-zAcyO2eCrytqdJb4vYOAsXk9A1LsIrJFTJhOR1dT2CElwT_tVg0_7P6O_CHNN6Y4Sc">Market-conforming proponents argue</a> that countries should not experiment with investing in sectors too far from their comparative advantage. Market-defying <a href="https://books.google.co.uk/books?hl=en&lr=&id=_eRtXClqzw4C&oi=fnd&pg=PA83&dq=ha-joon+chang+industrial+policy&ots=dPf2fK7722&sig=y4fxd3ImN-zpENTzjXWcnqAa8Fg&redir_esc=y#v=onepage&q=ha-joon%20chang%20industrial%20policy&f=false">optimists argue</a> that the historical record shows that countries like South Korea had some success in picking winners in sectors quite far from their comparative advantage.</p>
<h2>Industrial policy regimes</h2>
<p>Four industrial policy regimes have been applied across most African countries at different points since independence.</p>
<p>The first was the import substitution. This refers to trade and industrial policies that encourage domestic production to reduce dependence on foreign imports.</p>
<p>The second is a market-led regime. Here policies ranged from currency devaluations, privatisation, trade liberalisation to financial sector liberalisation. This regime brought about a <a href="https://www.cambridge.org/core/journals/african-studies-review/article/abs/spread-of-economic-doctrines-and-policymaking-in-postcolonial-africa/AE5F57F4011E71D9E1C36086F7000667">decisive shift</a> of power from ‘spending ministries’ to ‘budgetary ministries’. </p>
<p>The third regime was <a href="https://www.tandfonline.com/doi/full/10.1080/09692290.2019.1657480?casa_token=NQsdUAc4OZMAAAAA%3AlWUeoHAgqaIr9VjnXoxiJpWe9WRrH83JcDoOn6QAPJbtAQ1sjjLbEE84hVMgTXrEJFrg1A6gQkgXHWM">the export-first industrial policy</a>. This has been dominant over the past two to three decades. It has been most visible through special economic zones and the encouragement of firms in Africa to link up to high-end global markets. This linkage was most pronounced in the apparels sector.</p>
<p>The fourth regime was the domestically-oriented industrial policy. It has become increasingly visible over the past decade. It involves protection of domestic producers and the use of public procurement. Public procurement is used to encourage domestic consumption of locally procured goods (through Made In Campaigns).</p>
<p>Uganda, Rwanda and Kenya recently increased import duties on used clothes and then <a href="https://www.tandfonline.com/doi/full/10.1080/09692290.2020.1751240">banned their imports</a>. Other African countries have been using public procurement to secure domestic markets. They include <a href="https://www.rsamade.co.za/">South Africa</a>, <a href="https://qz.com/africa/1624510/the-made-in-rwanda-policy-is-boosting-kigalis-fashion-sector/">Rwanda</a>, <a href="https://www.pwc.com/ug/en/press-room/buy-uganda-build-uganda.html">Uganda</a>, <a href="http://madeinkenya.brandkenya.go.ke/">Kenya</a> and [Ghana](https://www.gsa.gov.gh/made-in-ghana/#:~:text=The%20Made%20in%20Ghana%20(MiG,the%20Made%20in%20Ghana%20campaign).</p>
<p>Outward-oriented and domestically-oriented industrial policies have been replicated in several African countries. Examples include Uganda and Rwanda. This has sometimes been done without adapting these policies to the local political constraints.</p>
<p>In <a href="https://www.tandfonline.com/doi/full/10.1080/13600818.2021.1960296">a new paper</a> I examine how this replication took place in Uganda. I also look at the challenges associated with failing to adapt policies to local political realities.</p>
<p>Rwanda <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/dech.12498">implemented</a> similar policies to which President Paul Kagame’s government has remained committed. Ugandan President Yoweri Museveni’s government, on the other hand, has wavered. </p>
<p>I was keen to understand why.</p>
<p>The paper argues for a more historically-informed understanding of industrial policy. The aim is to get a better understanding of contemporary constraints in specific sectors.</p>
<h2>Uganda apparels sector</h2>
<p>Uganda’s case shows how domestic coalitions, for example, with technical support from international finance institutions, can obstruct implementation of policies. These coalitions have obstructed both the <a href="https://www.pwc.com/ug/en/press-room/buy-uganda-build-uganda.html">Buy Uganda, Build Uganda</a> strategy and the attempt to raise tariffs on used clothing.</p>
<p>When Uganda, Kenya and Rwanda proposed a ban (or a raise of tariffs) on imports of used clothing, the US threatened to withdraw its preferential market through the <a href="https://ustr.gov/issue-areas/trade-development/preference-programs/african-growth-and-opportunity-act-agoa">African Growth and Opportunity Act</a>. </p>
<p>This shows the first of two problems that bilateral trade treaties present. The first is that they constrain the ability of a country to enact domestically-oriented and export-first policies. In addition, export first industrial policy has empowered foreign companies, which depend on preferential market access through bilateral treaties. </p>
<p>This has certainly been the case in Uganda. </p>
<p>The Ministry of Finance and the Central Bank <a href="https://www.monitor.co.ug/uganda/news/national/bubu-is-ill-conceived-and-incompatible-prof-mutebile-1693814?view=htmlamp">have led the charge against</a> domestically-oriented industrial policy. They have consistently dissented publicly against domestically-oriented industrial policies. And the comparatively weaker Ministry of Industry, Trade and Cooperatives has struggled to enact industrial policies. </p>
<p>It has become commonplace to analyse industrial policy constraints by looking at either the technical (industrial policy instruments) or transitional (how the powerful oppose) costs. Yet historical analysis highlights two other essential constraints. The first is whether the balance of power within ministries has shifted to budgetary ministries, prioritising limited wastage. </p>
<p>Yet, if experimentation is central to successful industrial policy, <a href="https://global.oup.com/academic/product/african-economic-development-9780198832331?cc=us&lang=en&#:%7E:text=African%20Economic%20Development%3A%20Evidence%2C%20Theory,and%20horticultural%20and%20agribusiness%20exports.">wastage would be inevitable</a>.</p>
<p>The second constraint relates to whether there is intellectual space to think about how politics may shape possibilities rather than just be an impediment. The pursuit of pluralist policies in Africa is being hamstrung by the dominance of neoclassical economics at universities and budgetary ministries. This means that there is little space to push against the market-led assumptions associated with the policies of multilateral financial institutions.</p>
<p>That’s why there has been little uptake of domestically-oriented industrial policies in Uganda. The Uganda government continues to prioritise supporting export-oriented firms. And the current domestic policy environment doesn’t allow for support for firms that produce for the domestic market.</p>
<h2>Foreign exchange constraint</h2>
<p>Most former colonies were dependent on primary commodity exports after independence, leaving them vulnerable to commodity price fluctuations. But trying to reverse this has proven difficult. This is because a reduction of commodity exports to boost domestic manufacturing may result in foreign exchange shortages. In turn, this makes it difficult to pay for imports. </p>
<p>Most African countries remain constrained by this challenge even today.</p>
<p>With many African countries facing a loss of exports and a foreign exchange crunch, they may become even more reliant on foreign finance. <a href="https://developingeconomics.org/2020/11/05/covid-19-and-the-myth-of-convergence-the-west-the-rest-and-the-urgent-need-for-fiscal-space-in-the-remainder/">Within that policy space</a>, it is still yet to be seen if there will be possibilities for industrial policy experimentation.</p><img src="https://counter.theconversation.com/content/172528/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Pritish Behuria does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The experiences of all past successful late industrialisers tell us that experimentation with policies resulted in better outcomes.Pritish Behuria, Lecturer in Politics, Governance and Development, Global Development Institute, University of ManchesterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1318542020-09-01T10:40:46Z2020-09-01T10:40:46ZFree ports could help Britain take back control and keep trade flowing with the EU<figure><img src="https://images.theconversation.com/files/355788/original/file-20200901-18-1ghspb7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The path to freedom?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/container-ship-export-import-business-logistics-556513900">Shutterstock</a></span></figcaption></figure><p>Britain is considering opening free ports to shore up its economy when the Brexit transition ends. The idea is that <a href="https://www.gov.uk/government/consultations/freeports-consultation">ten free ports across the country</a> will increase trade, attract inward investment, encourage high-tech manufacturing and create employment in some of the UK’s most deprived areas. </p>
<p>Free ports have been <a href="https://www.cps.org.uk/research/the-free-ports-opportunity/">portrayed</a> by some as a way for the UK to rediscover its maritime vocation and increase trade with the world beyond the EU after Brexit. Given that it’s effectively impossible to have a free port as a member of the EU, these free trade zones are seen as something the UK could capitalise on outside of EU law. </p>
<p>Our <a href="https://www.sciencedirect.com/science/article/abs/pii/S030438781630102X">research</a> into free ports indicates that they will not create a free trade utopia that benefits the whole country. But they can serve as a way to maintain regulatory alignment, and therefore free trade, with the EU, while at the same time making trade deals with other countries. </p>
<h2>Success stories</h2>
<p>A free port is an area within a country’s land border where different customs rules apply. In its most basic form, firms operating in a free port enjoy duty-free access to imports and only have to pay tariffs when they export goods to the national customs territory.</p>
<p>Free ports often offer a wide range of incentives for businesses to operate here. These include lower corporate taxes, providing basic utilities at below-market prices and laxer regulations and employment rules. The UK government <a href="https://www.gov.uk/government/news/freeports-consultation-extension">has indicated</a> that companies based in the new free ports would enjoy discounts in business rates (up to £275,000 over a five-year period), enhanced capital allowances on new machinery and equipment, R&D tax credits and streamlined planning procedures.</p>
<p>Free ports and other special economic zones are <a href="https://unctad.org/en/PublicationChapters/WIR2019_CH4.pdf">increasingly popular around the world</a>. Out of the 5,400 zones in operation in 2019, more than 1,000 were opened during the last five years. Most have been in developing countries; notably China, the Dominican Republic, Mauritius and Mexico.</p>
<figure class="align-center ">
<img alt="Shenzhen stock market building and bull sculpture" src="https://images.theconversation.com/files/355799/original/file-20200901-22-1xw1h0h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/355799/original/file-20200901-22-1xw1h0h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/355799/original/file-20200901-22-1xw1h0h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/355799/original/file-20200901-22-1xw1h0h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/355799/original/file-20200901-22-1xw1h0h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/355799/original/file-20200901-22-1xw1h0h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/355799/original/file-20200901-22-1xw1h0h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Special zones like Shenzhen have boosted Chinese trade and helped the country’s economy grow.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shenzhenchinajune-152015-shenzhen-stock-market-building-297414167">zhu difeng / Shutterstock.com</a></span>
</figcaption>
</figure>
<p>The common theme linking these success stories is that their free ports were introduced against a backdrop of highly protectionist trade policies. The ports reduced the costs for exporters in these countries requiring imported parts. They enabled them to diversify their exports away from just primary commodities and facilitated the growth of firms into <a href="https://www.imf.org/en/Publications/WP/Issues/2019/01/18/Global-Value-Chains-What-are-the-Benefits-and-Why-Do-Countries-Participate-46505">global value chains</a>. </p>
<p>The <a href="https://documentos.bancomundial.org/es/publication/documents-reports/documentdetail/184001487332346268/special-economic-zones-global-value-chains-and-the-degree-of-domestic-linkages-in-the-dominican-republic">Dominican Republic</a> is a prime example of this transition. While in the 1960s, most of its exports were bananas, sugar, rum and cigars, the establishment of free ports allowed it to become one of the main apparel exporters to the US in the 1980s. </p>
<h2>Costs and benefits</h2>
<p>Given the UK’s level of development and balance of its economy between manufacturing and services, there is limited scope for free ports to bring the benefits enjoyed by developing countries. It is unlikely that the fiscal incentives provided by free ports will be generous enough to realign the UK’s exports away from services, concentrated in London, towards manufacturing elsewhere.</p>
<p>Free ports also entail substantial costs. The incentives offered in these free trade zones lowers the costs of exported goods, which are enjoyed by consumers abroad in the form of lower prices. Meanwhile the cost of foregone tax revenue is felt at home. </p>
<p>The tax incentives to attract businesses to free ports also create an uneven playing field that slows the dynamism of firms outside free ports. Products manufactured in free ports tend to be more sophisticated than those produced outside, offering limited value to the country’s economy beyond the free trade zone, creating what’s known as an <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/863411468233087995/how-to-sustain-export-dynamism-by-reducing-duality-in-the-dominican-republic-a-world-bank-trade-competitiveness-diagnostic">enclave economy</a>.</p>
<p>In countries where taxes are determined at the regional level – China being a prime example – the use of free ports and special economic zones spurred a process of <a href="https://www.aeaweb.org/articles?id=10.1257/jel.49.4.1076">intense competition</a> among local officials seeking to attract the largest number of companies to their respective zone. Tax revenues in many of these regions suffered as a result.</p>
<h2>Ironing out the kinks</h2>
<p>Nonetheless, taking a page from China’s playbook, free ports could serve as effective <a href="https://mitpress.mit.edu/books/wto-and-economic-development">laboratories</a> for the UK to experiment with its future trade relationship with the EU. Having been virtually closed to international trade, the Chinese Communist Party introduced special economic zones in 1978 to test market-oriented reforms in the controlled environment of these specific zones. Doing so allowed policymakers to contain problems more easily and to iron out the kinks of certain policies before rolling them out at the wider provincial and national levels.</p>
<p>If regulatory alignment with the EU and “taking back control” are conflicting objectives for the UK, free ports targeting trade with the EU could offer a solution to preserve the UK’s access to the European market, while the UK pursues free trade agreements with other countries. This would be critical to sectors such as the auto industry, chemicals and electrical equipment, which rely on <a href="https://www.ifs.org.uk/publications/13782">more than half of their inputs from the EU</a>. </p>
<p>From this perspective, the key for the success of free ports is that they enjoy access to the EU single market with as little friction as possible.</p><img src="https://counter.theconversation.com/content/131854/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alejandro Riaño has been an external consultant for the World Bank and the Inter-American Development Bank. </span></em></p><p class="fine-print"><em><span>Fabrice Defever has been an external consultant for the World Bank.</span></em></p>But they may not bring all the economic benefits that their proponents suggest.Alejandro Riaño, Lecturer in Economics, City, University of LondonFabrice Defever, Professor of Economics, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/752492017-04-06T10:45:35Z2017-04-06T10:45:35ZWhy jobs in special economic zones won’t solve the problems facing the world’s refugees<p>In a <a href="https://www.penguin.co.uk/articles/find-your-next-read/extracts/2017/mar/refuge-extract/">new book</a>, two Oxford professors, Alexander Betts and Paul Collier, are calling on politicians to harness “the remarkable opportunities of globalisation” to reorient the refugee system away from humanitarian assistance and towards development. Focusing primarily on the arrival of large numbers of Syrian refugees in Europe during the course of 2015, they argue that the refugee system has failed to provide long-term solutions for refugees who are left festering in underfunded “<a href="https://www.theguardian.com/world/2017/mar/22/why-denying-refugees-the-right-to-work-is-a-catastrophic-error">humanitarian silos</a>”. </p>
<p>One of the “big ideas” Betts and Collier present is that global capitalism can ride to the rescue of the refugee system through the creation of jobs for refugees within special economic zones (SEZs) in countries such as Jordan, currently host to <a href="http://data.unhcr.org/syrianrefugees/regional.php">around 650,000 Syrian refugees</a>. SEZs are designated areas with special economic regulations intended to attract foreign direct investment. </p>
<p>The proposition is a simple one: provide companies with tax incentives and opportunities for trade in return for providing refugees with opportunities for work, autonomy and self-reliance. They argue this will create a “win-win” situation for both the developing countries which carry the burden of supporting the majority of the world’s refugees with limited resources, and the rich countries struggling politically to manage the consequences of increased irregular migration.</p>
<p>But as I argue in a review <a href="http://www.nature.com/nature/journal/v544/n7648/full/544026a.html">published in the journal Nature</a>, neither the book’s diagnosis nor its vision take us closer to a solution because it engages only partially with the complex political and economic realities facing the world’s refugees.</p>
<h2>New wine in old bottles</h2>
<p>The idea of harnessing the skills and capabilities of refugees for development is far from new. <a href="http://www.unhcr.org/cgi-bin/texis/vtx/search?page=search&docid=3ae68fb510&query=Protocol%20Relating%20to%20the%20Status%20of%20Refugees%201967">In the 1960s</a>, UNHCR – the UN’s Refugee Agency – tried to link its refugee assistance programmes with development aid. From the early 1980s, there was a strong emphasis on what came to be known as <a href="http://www.unhcr.org/uk/excom/standcom/3ae68d0e10/social-economic-impact-large-refugee-populations-host-developing-countries.html">“refugee aid and development”</a> programmes, with the aim of moving refugees towards self-sufficiency and a durable solution to their situation.</p>
<p>But the increased interest shown by the EU and international organisations such as the World Bank is certainly new and clearly reflects more recent political and economic developments – particularly in the EU and Jordan. The EU has been desperately try to find <a href="http://www.economist.com/news/europe/21716446-plan-fraught-problems-and-will-be-difficult-enforce-european-union-tries">ways to limit the number of refugees arriving in Europe</a>. Jordan’s economic woes, which are <a href="http://www.mei.edu/content/article/jordan-s-syrian-refugee-economic-gamble">longstanding</a>, have been exacerbated by the arrival of large numbers of Syrian refugees. </p>
<p>These political and economic interests came together in the <a href="https://2c8kkt1ykog81j8k9p47oglb-wpengine.netdna-ssl.com/wp-content/uploads/2016/02/Supporting-Syria-the-Region-London-2016-Jordan-Statement.pdf">Jordan Compact</a>, which was signed in London in February 2016. The agreement <a href="https://2c8kkt1ykog81j8k9p47oglb-wpengine.netdna-ssl.com/wp-content/uploads/2016/02/Supporting-Syria-the-Region-London-2016-Jordan-Statement.pdf">provides a $2.1 billion aid package</a> to Jordan on the condition that jobs are created for Syrian refugees who, for the past five years, have been barred from legally working in the kingdom. </p>
<p>At the same time, multilateral development banks said there was potential to <a href="http://www.jordantimes.com/news/local/jordan-secures-17b-grants-grant-equivalents-london-conference">offer as much as $1.9 billion</a> in concessional financing, and the EU has <a href="http://www.reuters.com/article/us-mideast-crisis-syria-jordan-refugees-idUSKCN1012M4?il=0">agreed</a> to waive taxes and quotas for products created using Syrian labour. Jordan <a href="http://www.unhcr.org/5715ef866.html">will also allow legal employment</a> for the hundreds of thousands of Syrians outside the zones, without putting them in direct competition with Jordanians. The aim is to create as many as 200,000 jobs for Syrian refugees over the next five years.</p>
<h2>Employment is not the same as protection</h2>
<p>While globalisation has undoubtedly <a href="http://yaleglobal.yale.edu/content/little-notice-globalization-reduced-poverty">lifted millions of people out of poverty</a>, it has also been associated with exploitation and marginalisation. <a href="http://www.cividep.org/2012/11/30/working-living-conditions-special-economic-zones-comparative-study-india-indonesia/">Evidence from SEZs</a> in Asia shows how labour rights have been compromised, resulting in extremely low wages, forced overtime and different forms of abuse. So much so that in India they have been dubbed <a href="https://www.indiaresists.com/special-exploitation-zone-sezs-flaws-failures/">“special exploitation zones”</a>.</p>
<p>But the problem with SEZs is bigger than this.</p>
<p>Around <a href="http://www.independent.co.uk/news/world/middle-east/syria-civil-war-five-million-refugees-conflict-resettlement-un-geneva-donald-trump-europe-migrant-a7658606.html">5m people</a> have been forced to leave Syria and are currently hosted by Turkey, Jordan and Lebanon. But the majority of the world’s <a href="http://www.unhcr.org/statistics/unhcrstats/58aa8f247/mid-year-trends-june-2016.html">21m refugees</a> are living elsewhere, predominantly in countries in which there is ongoing conflict or with whom relations with the West are distinctly strained. </p>
<p>It is hard to imagine international organisations funding the employment of refugees in SEZs in the Islamic Republic of Iran. Iran is currently host to nearly a million refugees mainly from Afghanistan who face <a href="https://www.hrw.org/report/2013/11/20/unwelcome-guests/irans-violation-afghan-refugee-and-migrant-rights">discrimination and exclusion from the labour market</a>. </p>
<p>Or Chad, host to <a href="https://www.refugeesinternational.org/reports/2015/9/29/sudanese-refugees-in-chad-passing-the-baton-to-no-one">more than 360,000 refugees</a> mainly from surrounding countries which are <a href="https://www.hrw.org/africa/chad">reeling from attacks by the militant group Boko Haram</a>.</p>
<p>Or Sudan, with an <a href="http://www.unhcr.org/576408cd7.pdf">estimated 356,000 refugees</a>, whose president, Omar al-Bashir, is facing an <a href="https://www.icc-cpi.int/darfur/albashir">International Criminal Court arrest warrant</a> alleging war crimes and crimes against humanity.</p>
<p>And in Ethiopia where the EU has signed a <a href="https://qz.com/791379/ethiopia-africas-largest-host-of-refugees-will-create-100000-jobs-to-tackle-migration-crisis/">similar agreement to the one in Jordan</a>. Here, my discussions with those working on the ground suggest there is growing resistance to the idea of new jobs being “ring-fenced” for refugees. </p>
<p>Crucially, the focus on creating employment does not address the problem at the heart of the refugee system: the failure of the international community to step up to its responsibilities under <a href="http://www.unhcr.org/uk/1951-refugee-convention.html">international law</a> to provide protection for those who are fleeing conflict, persecution and human rights abuse. </p>
<p>It is also questionable whether employment in semi- or low-skilled jobs in neighbouring countries could prevent people from moving on to Europe or beyond. <a href="http://www.medmig.info/">Recent research</a> my team and I did interviewing 500 refugees and migrants who crossed the Mediterranean to Europe during 2015 found that many had moved not just because of a lack of work but because of a lack of protection, security, education and healthcare for their children. </p>
<h2>Is it working?</h2>
<p>In the period since Betts and Collier <a href="https://www.foreignaffairs.com/articles/levant/2015-10-20/help-refugees-help-themselves">first suggested</a> that SEZs would help mend the broken refugee system in late 2015, a number of governments and organisations have lined up behind the proposal. But even in Jordan doubts are starting to creep in.</p>
<p>More than a year since the Compact agreement was signed, Jordan has secured $923.6m in funding, <a href="https://www.irinnews.org/feature/2017/03/21/jordan-looks-turn-refugee-crisis-economic-boon">but the hoped-for results haven’t yet materialised</a>. Although Syrians in Jordan were able to get work visas from April 2016, the humanitarian news agency IRIN reported that according to Jordan’s Ministry of Labour, by February 2017, 38,516 permits had been issued. This means that the Jordan Compact has so far benefited a small proportion of refugees despite huge political and financial effort.</p>
<p><a href="http://www.dw.com/en/syrian-refugees-in-jordan-find-little-benefit-in-working-legally/a-36943348">The reasons are complex</a> but at heart they reflect a failure on the part of governments and international organisations to engage with the complex realities of the Jordanian labour market – which is already <a href="http://www.middleeasteye.net/in-depth/features/jordans-crackdown-egyptian-migrant-workers-stirs-anger-confusion-1239563644">highly dependent on migrant labour</a> – and the needs and aspirations of refugees themselves.</p>
<p>Within SEZs, the jobs on offer are typically low- or semi-skilled with long and repetitive hours. Those who have tried to hire Syrians in larger numbers, for example <a href="http://www.aljazeera.com/news/2016/09/syrian-worker-programme-faces-hurdles-jordan-160919073944811.html">within the garment industry</a>, have found that the take-up has been poor. Whereas other migrant workers are typically single, many Syrians struggle with childcare responsibilities and poor transport links from the places they are living to SEZs. </p>
<p>In practice, for many Syrians the gains of being legally employed are <a href="http://www.dw.com/en/syrian-refugees-in-jordan-find-little-benefit-in-working-legally/a-36943348">simply not worth the losses.</a> Some refugees fear losing access to financial support or the opportunity to join family members who are have already moved to other countries. Others prefer to remain under the radar rather than risk registering with a government they don’t fully trust. </p>
<p>And although they are also allowed to apply for work permits outside of the SEZs, <a href="http://www.al-fanarmedia.org/2017/02/lebanon-jordan-syrians-face-bleak-employment-future/">Syrian refugees are barred</a> from applying for jobs as accountants, doctors, engineers, lawyers and teachers for which they have previously been trained but which are viewed as potentially taking opportunities from Jordanian workers. </p>
<p>It would be easy to dismiss all of these points as an unnecessary distraction from the central proposition put forward by Betts and Collier, namely the need to address the problems facing the refugee system by focusing on development rather than humanitarianism, empowerment rather than dependency. But details are important. </p>
<p>SEZs are a tool for creating livelihood opportunities for some refugees in some contexts. But addressing the profoundly political problems that underpin the drivers of forced migration and have come to mark the international community’s response to it will require far more creative thinking. And it will require the kind of alliances and allegiances that challenge and confront some of the profound inequalities with which global capitalism has come to be associated.</p><img src="https://counter.theconversation.com/content/75249/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Heaven Crawley receives funding from the Economic and Social Research Council (ESRC)</span></em></p>Employing Syrian refugees is not the same as protecting them.Heaven Crawley, Research Professor, Coventry UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/515172015-12-04T04:26:30Z2015-12-04T04:26:30ZWhat Africa can learn from China’s special economic zones<figure><img src="https://images.theconversation.com/files/104249/original/image-20151203-22473-18t362y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Shanghai demonstrates how good planning can help Africa to develop successful special economic zones. </span> <span class="attribution"><span class="source">Shutterstock </span></span></figcaption></figure><p>China and its African partners want to scale up industrialisation on the continent in addition to China’s infrastructure development projects - the <a href="http://www.fmprc.gov.cn/mfa_eng/wjbxw/t1233843.shtml">“Three Major Network”</a> of railway, road and regional aviation. China’s own experience in industrial development through the special economic zones offers valuable lessons.</p>
<p>Special economic zones are geographically designated trade areas that are used to attract foreign investors and boost industrialisation. They generally have trade laws that differ from the rest of the country and companies are offered tax incentives to set up operations. </p>
<p>For African countries, setting up special economic zones can boost the diversification of their economies and promote manufacturing. China’s experiences indicate that for zones to succeed, African governments must improve infrastructure and technology and have an educated and competent labour force as well as efficient and effective <a href="http://www10.iadb.org/intal/intalcdi/PE/2012/12126.pdf">administration.</a> </p>
<h2>What China did</h2>
<p>China introduced special economic zones in the 1970s as part of its policy to open up to international trade. Deng Xiaoping’s <a href="http://news.bbc.co.uk/2/hi/asia-pacific/5237748.stm">economic reforms</a> became the turning point towards a market-oriented economy. A series of experiments, including the establishment of special economic zones, became the driving force for growth. </p>
<p>China set up zones in Southern coastal areas as part of the economic reforms under the open door policy. They were very successful and led to unprecedented growth. <a href="http://english.cntv.cn/english/special/SEZ30years/homepage/index.shtml">Shenzhen</a>, a small fishing town, became the first special economic zones. It is now the most prominent manufacturing hub on the globe. </p>
<p>This inspired African countries and became the rationale to establish the so-called <a href="https://www.chinafile.com/library/china-africa-project/chinas-special-economic-zones-africa-lots-hype-little-hope">Chinese led-SEZs</a> in Egypt, Mauritius, Nigeria, Zambia and Ethiopia in the mid-2000s. More African countries are planning to establish special economic zones. In South Africa, the Special Economic Zones <a href="http://www.gov.za/documents/special-economic-zones-act">Act</a> was passed recently and ten were selected. </p>
<p>While physical infrastructure and modern facilities at SEZs can contribute to the modernisation of industrial processes in the country, soft infrastructure is as important when it comes to attracting investors. In the case of China, investment in human resources and local industry has played a significant role.</p>
<p>Cooperation between the central and provincial governments under the overarching long term plan was also crucial. The Chinese <a href="http://www.bjreview.com/business/txt/2012-02/28/content_428421.htm">cases</a> show that the zones have brought about spillover effects like forward-backward linkages with domestic enterprises. </p>
<p>This contributed to the development of entire provinces, as well as the country. In addition, the country was able to provide abundant and skilled labour to sustain the zones. </p>
<p>Over the years, China has also continuously upgraded its SEZs. One example is the creation of the <a href="http://www.ftz-shanghai.com/">Shanghai Free Trade Zone</a>. </p>
<p><a href="http://www.china-briefing.com/news/2014/11/06/shanghai-economic-nexus-china.html">Shanghai</a> is one of the largest metropolises in China. In 2013 it ranked third in China’s economy in terms of GDP. It boasts the world’s biggest container port and Shanghai Pudong International Airport is an international hub. Heavy and chemical industries have become one of the mainstays of the city’s economy. Its versatile manufacturing sector ranges from cars to household appliances and textiles. </p>
<p>The establishment of the Shanghai free trade zone is in line with China’s reform process. Shanghai is the country’s first special customs supervision zone and enjoys the status of a <a href="http://www.scmp.com/topics/shanghai-free-trade-zone">free trade area</a> like Hong Kong.</p>
<p>Shanghai already has a high quality financial services sector. This will further enhance Shanghai’s competitiveness and can create jobs and absorb new workers that enter the job market. The hope is that the Shanghai free trade zone will reignite regional and national economic growth just as Shenzhen did nearly three decades ago.</p>
<p>There are challenges. The <a href="http://www.nytimes.com/2015/11/05/business/dealbook/chinas-slowdown-raises-questions-about-long-term-growth.html?_r=0">slowdown</a> in China’s economy has affected development. The prospect of cheap labour that once enabled the country to attract foreign investors is no longer there. </p>
<p>Another concern is that right after the establishment of the Shanghai free trade zone 12 cities and provinces expressed interest in having the same arrangement. In the original plan, the focus was on Shanghai alone, but it seems that competition between provinces and other free zones has intensified. </p>
<h1>What African countries need to get right</h1>
<p>Special economic zones have become a popular buzzword in many developing countries and competition is intense. Most countries think that special economic zones will be a panacea for their economic woes.</p>
<p>There are an estimated 3,500 SEZs operating in 130 countries <a href="http://www.cllql.com/wp-content/uploads/SpecialEconomicZones.pdf">globally</a>. The zones are in serious competition with each other. In response to the growing competition each zone is trying to specialise so that it can take advantage of local conditions.</p>
<p>In Africa, many countries have provided unprecedented fiscal and non-fiscal incentive packages to attract foreign direct investment into special economic <a href="http://www10.iadb.org/intal/intalcdi/PE/2012/12126.pdf">zones</a>. But those that have been established have not delivered what was expected.</p>
<p>The reason, among others, is that governments made poor location choices and lacked effective strategic planning and management. </p>
<p>On cost and benefits, the initial cost, for instance fiscal and non-fiscal incentives for investors, is often higher than the gain. In addition, benefits are not automatically generated after a zone has been established. </p>
<p>In many cases, policy makers have not set up long term plans and there is a lack of consultation with local communities.</p>
<p>To benefit from the zones African governments must set up and implement sound policies. African governments should note that the Chinese government improved the regulatory environment and tax policies for trade and investment. </p>
<p>Many African countries produce similar raw materials. This means that there is strong competition between them. Host countries should therefore develop strategies based on competitive advantage that can maximise potential.</p>
<p>And host governments often think only about attracting investors and of short-term gains. Long-term assessment is often not conducted properly before construction starts.</p>
<p>African governments have already shown willingness to pursue industrial <a href="http://allafrica.com/stories/201512030197.html">development</a>, and policy frameworks and infrastructure are underway. They should now improve the general investment conditions to circumvent existing bottlenecks. </p>
<p>But special economic zones are only a stepping stone in a bigger strategy for industrialisation and the diversification of any economy. Promoting strategic competition remains crucial to any government action when it comes to industrial development zones.</p><img src="https://counter.theconversation.com/content/51517/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yejoo Kim does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China’s experience indicates that special economic zones can help countries in Africa attract foreign investors, diversify their economies and promote manufacturing.Yejoo Kim, Research Fellow, Centre for Chinese Studies, Stellenbosch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/461982015-09-01T07:08:43Z2015-09-01T07:08:43ZAhead of ASEAN Economic Community, Indonesia should consider economic zones at her borders<p>As South-East Asian countries gear up for their <a href="http://www.asean.org/communities/asean-economic-community">ASEAN Economic Community</a>, coming into effect by the end of this year, Indonesia should look into setting up special economic zones together with bordering countries.</p>
<p>These special zones are in line with the ASEAN Economic Community’s <a href="http://www.asean.org/archive/5187-10.pdf">blueprint</a> to support local businesses and allow people and goods to move freely between states. Having countries jointly set up economic hubs in border areas can minimise territorial disputes, reduce cross-border crimes and improve the lives of people living in remote outposts. </p>
<h2>Special zones in border areas</h2>
<p>Economists call these areas Special Border Economic Zones (SBEZs). It’s a variation of <a href="https://en.wikipedia.org/wiki/Special_economic_zone">Special Economic Zones</a> (SEZs), a dedicated area where businesses receive tax breaks and other regulatory incentives to produce and distribute goods. </p>
<p>A Special Border Economic Zone is an area set up by bordering countries to support businesses and promote trade and tourism at the border. </p>
<p>Malaysia and Thailand have a couple of these hubs and plan to have at least eight between them. The <a href="http://www.adb.org/countries/gms/main">Greater Mekong Subregion</a>, which covers Vietnam, Thailand, Laos, Cambodia and Myanmar plus China, will have 60 SBEZs by the end of 2015. Some 54 of these are between the borders of Laos and Cambodia. </p>
<p>But Indonesia, which shares land borders with Malaysia, Papua New Guinea and Timor Leste, has yet to join the crowd. </p>
<p>Most Indonesians living in border areas are poor. Far from the centre of government and business, the roads and schools in these remote areas are in bad condition. Human traffickers and drug smugglers often use unsupervised borders to move their victims and illegal cargo. </p>
<p>Border economic zones may be a solution to these problems. SBEZ is not a one-size-fits-all solution to stop these crimes. But it is a way to minimise them. </p>
<p>These shared economic zones in border areas increase community and government presence, which may reduce the areas’ vulnerability to illegal activities. By creating jobs, border economic zones may also reduce welfare problems in these areas. </p>
<h2>Success stories</h2>
<p>Indonesia can look at different models between Thailand and Malaysia, the countries in the Greater Mekong Subregion, and the <a href="https://en.wikipedia.org/wiki/%C3%98resund_Region">Oresund region</a> between Sweden and Denmark, as case studies. </p>
<p>The Narathiwat-Rantau Panjang zone between Thailand and Malaysia is an incubator for small and medium businesses. It produces traditional snacks and has a shared market that can attract tourists. </p>
<p>The two countries also share <a href="http://www.nationmultimedia.com/breakingnews/Thailand-Malaysia-building-Rubber-City-Prayut-30249263.html">Rubber City</a>, an industrial zone that produces rubber and products from the material, between Thailand’s Ban Prakob and Malaysia’s Durian Burung. It has an inland port and Thailand and Malaysia are planning to build a border town with schools, hotels, a convention centre, health facilities and public transportation.</p>
<p>Meanwhile, through a <a href="http://www.gms-cbta.org/cross-border-transport-agreement">Cross-Border Transport Facilitation Agreement</a>, countries in the Greater Mekong Subregion agreed to build economic zones around the borders. Countries set up joint facilities to inspect people and goods going through the borders. Similar to SBEZs between Malaysia and Thailand, these border economic zones provide jobs and promote trade and tourism.</p>
<p>The Oresund region between Denmark and Sweden is far more advanced. It’s an area of more than 2 million hectares – more than twice the size of Melbourne – where Swedes and Danes share a space to work, trade and live. </p>
<h2>Developing SBEZs in Indonesia</h2>
<p>To develop SBEZs, Indonesia should arrange the relevant regulations and policies with neighbouring countries. An intergovernmental body to oversee these areas will be needed too. </p>
<p>Indonesia may consider doing a more comprehensive study to determine potential areas that could benefit from SBEZs and start talks with neighbouring countries on this basis. </p>
<p>Indonesia faces many problems in its border areas, from human trafficking and smuggling to activities of separatist groups. It should not deal with these issues only through a defence and security approach. </p>
<p>If Indonesia would like to improve control of its borders and retain its sovereignty, it should also improve the wellbeing of people living there.</p><img src="https://counter.theconversation.com/content/46198/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Muhammad Faiz Aziz does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As Southeast Asian countries countries gear up for its ASEAN Economic Community Indonesia should look into setting up special economic zones together with bordering countries.Muhammad Faiz Aziz, Researcher, Indonesian Center for Law and Policy Studies (PSHK)Licensed as Creative Commons – attribution, no derivatives.