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LESSONS IN SEZ IMPLEMENTATION: Stories from the trenches. International Trade Department BBL Series March 14, 2011. Speakers : Claude Baissac: Eunomix – Secretary Gen., WEPZA Jean-Paul Gauthier: Deloitte – Assistant Secretary Gen., WEPZA Angelica Bertoli Lawson: London & Regional (Panama)
Stories from the trenches
International Trade Department BBL Series
March 14, 2011
Claude Baissac: Eunomix – Secretary Gen., WEPZA
Jean-Paul Gauthier: Deloitte – Assistant Secretary Gen., WEPZA
Angelica Bertoli Lawson: London & Regional (Panama)
Ganesh Rasagam: AFTFP
Jean-Paul Gauthier, Esq., Deloitte Consulting LLP
Assistant Secretary Gen., WEPZA
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
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…)
“I don’t want a sorta special economic zone, I don’t want a kinda special economic zone, I want a SPECIAL economic zone!”
How do Athi River SEZ, N’Sele SEZ, Banjul J22 Gateway match up?
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
Claude Baissac, Eunomix
Secretary General, WEPZA
World Bank, Washington DC, 14 March 2011
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
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
Most of these errors are a direct manifestation of broader political economic realities, and notably:
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
Yet, these factors have systematically been underestimated, both ex post and ex ante
The emphasis has usually been on economic, site, regulatory and broad institutional fundamentals
Most projects are designed as “plug and play”, ignorant of, and indifferent to crucial political economic factors that condition feasibility
This undetected misdiagnosis, in more fragile states, introduces a great risk to project viability
The private sector cannot, and should not, be charged with these tasks, for obvious reasons
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 state is to act as a catalyst, so the private sector can act as a catalyst, because the state cannot act as a catalyst for economic transformation in the first place…
First, we need to recognise upfront, and properly document, the obstacles that will confront a project in strategy, design and implementation
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
It is generally tempting to outsource all key deliverables to external agents – consultants, donor experts, etc. – to bypass critical weaknesses in government
It is also tempting to concentrate key strategic capabilities outside of, and over-assist government. A typical way is to give figurative roles to oversight and technical committees. The real job is done outside
Worse still, all key strategic decisions are made on behalf of government, usually through the careful pre-selection of strategic options that reduce the range of what is feasible
It is tempting, and reassuring, to follow a mechanical “best practice” approach to the sequential flow of phases and steps. This tends to mask the real issues that need to be addressed by the project, and removes contextual requirements. It also allows strategic decisions to be fed pre-digested to government
It is also tempting to attach oversized importance to isolated symbols of progress, like the creation of an oversight committee, the selection of a site, or a law. Often this is done by external agents to consolidate support, and can backfire
If we are to assist, we must align our own indicators of success to the long term indicators of the project: we must align cycles to the medium and long term
We must conduct upfront thorough political will and administrative capacity due diligences to identify the critical vulnerabilities and strengths that will condition success
We must support the development of core capabilities within government to think, learn, decide, plan, execute. This requires patience on the part of the parties. Government will expect the usual
If government is not willing to go through this preparatory phase, we must consider the likelihood of success of the project as being extremely low, and probably withdraw support