Last year, global flows of foreign direct investment fell by 13%, to $1.3 trillion, achieved the lowest level since the global financial crisis. A modest recovery of 10% is projected in 2019. (UNCTAD, 2019) In this context, competition for international investment is increasing worldwide and sparks a boom of special economic zones (SEZs). Global tally of SEZs has increased to nearly 5,400 in 145 countries, and more than 500 new SEZs are in the pipeline. SEZ became a mainstream government practice, channeled through new industrial policies.
The high concentration of capital, technologies, manufacturing and services in SEZs, reveal a great potential in creating synergies between sustainable development and economic growth by linking the regulatory frameworks of SEZs to 2030 Agenda and climate policy goals. SEZs have long been criticized for negative social and environmental impacts, linear model of doing business “take-make-
dispose”. The term, “Special Economic Zones” (SEZs) refers to designated areas where economic regulations are different from those of the rest of the country with the purpose to increase trade and FDI, promote job creation, promote technology transfer and provide benefits such as tax incentives, lower tariffs, and lower-income tax requirements. There are different forms of SEZs such as free trade zones, free ports, export processing zones, industrial parks, and economic cooperative zones, Chinese and Trade Cooperation Zones (UNDP, 2019).A number of countries defined the content of the social license to operate for SEZs.Forinstance,in Mexico, the Federal Law on SEZs defines that the purpose of SEZs is to promote sustainable economic growth, reduce poverty, allow the provision of basic services and expand opportunities for healthy and productive lives in the regions of the country where social development is lagging. Some other countries also task SEZs with broad social objectives (Liberia, South Africa). (UNCTAD, 2019)
UNCTAD’s World Investment Report 2019 supports the findings made by several economists (Brautigam and Xiaoyang, 2011; Farole, 2010; Aggarwal, 2004) and underscores the potential of SEZ to make positive important contributions to economic growth and developmentwhere they succeed to connect to the broader economy. Connectedness to a broader economy is a crucial precondition of the positive economy-wide impact according to the UNCTAD.The SEZ can help to (i) attract investment, create jobs and boost exports – both directly and indirectly; (ii) support global value chain (GVC) participation, industrial upgrading, and diversification. At the same time, taking stock of the success achieved worldwide, we may find that (i) the performance of many zones remains below expectations, (ii) too many zones operate in isolation from the rest of the economy or produce a limited impact beyond their confines and (iii) where they produce economic growth, after the build-up period, most zones grow at the same rate as the national economy (UNCTAD, 2019). Despite these concerns, SEZs remain top of mind for industrial and investment policymakers due to relative ease of channeling business reforms through SEZ and the perceived low cost of establishing SEZs. The most significant results SEZs delivered in China, where SEZs became the backbone of rapid economic development, a playground for regulatory experiments and new business models, new activities and new value proposition, served as a catalyst for sweeping economic reforms that later were extended throughout the country (UNDP, 2019; WB, 2011). At the same time, this success was not coupled with promoting sound climate-neutral technologies and environment-friendly production process methods, contributed to serious adverse effects such as air pollution, water contamination, natural resources degradation, GHG emissions. Indeed, most of the master plans developed for SEZs worldwide did not incorporate elements of sustainability or circular economy, waste and by-product exchange among companies. Therefore, the residents of the SEZs were not placed in a position of fully benefiting from economic and environmental savings that could result from embracing resource use efficiency at company level and industrial symbiosis comprising of closed material, energy and/or water cycles within the clusters of co-located industries (UNIDO, 2015).
How could we leverage the potential of the SEZ to promote and support the SDGs and climate policy agenda, promote resource use efficiency and circular economy? For SEZs to make a positive contribution to sustainable development and climate-neutral performance of countries’ industrial bases, a proper regulatory framework, and a clear industrial policy that prioritizes industrial ecology, waste minimization and resource efficiency at the source, need to evolve.
The governments need to establish proper systems of incentives and control, arrange the services for exchange of by-products, encourage the appearance of circular economy businesses in the confines of SEZs through tax incentives, access to finance. Such measures would aim at attracting investment in SDG-relevant activities, adopting the highest levels of ESG standards and compliance, and promoting inclusive growth through linkages and spillovers in nation-wide economies. The 2030 Agenda provides an essential proxy for these measures, drives strategic decisions and operations, which should be reflected in the value proposition that SEZs market to investors. It is important to measure the impact of SEZs, and few countries have a comprehensive process for monitoring and evaluating SEZ performance. According to UNCTAD (2019), a sustainable development impact assessment of SEZs should consider their direct and indirect economic contributions, fiscal and financial sustainability, technology and skills contributions, social and environmental impacts, support to regional integration, and policy experimentation and learning opportunities.
image: Great Stone, Industrial park, SEZ, Belarus
