integrated and comprehensive sez strategic & master plans jean-paul gauthier, sg of wepza, for...
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Integrated and Comprehensive SEZ Strategic & Master Plans
Jean-Paul Gauthier, SG of WEPZA, for Deloitte Consulting17 September 2014, 11:45am – 12:30pm
2014 NATIONAL SEZ CAPACITY BUILDING SEMINAR, 16 – 18 SEPTEMBER 2014
(DAY 2: KEY DETERMINANTS FOR A SUCCESFUL IMPLEMENTATION OF THE SEZ PROGRAMME: INTERNATIONAL BEST PRACTICES)
EAST LONDON IDZ, EASTERN CAPE PROVINCE, SOUTH AFRICA
Defining SEZ goals, priorities, vision
• Policymakers are too ambitious in setting objectives– Objectives are too broad to offer meaningful guidance– Often there are clear conflicts (e.g., technology incubators
unlikely to lead to much employment; employment intensive manufacturing target scale and cost efficiency rather than innovation)
• Set your goals with the “SEZ hardware” in mind:– Alignment with country advantages
“You are not Dubai” –Chuck Heath, Former CEO of JAFZA– Have the long-term in mind (10+ years)– M & E
The importance of location and transport connectivity for an SEZ
• Don’t let engineers or urban planners choose the SEZ site –they don’t “do” economics
• SEZs should be:– Demand driven and responsive to market
requirements (i.e., located where investors want them)
– Sited with transport economics (e.g., labor, markets, logistics, road congestion) in mind
– Viable (short and long-term)– Positive in terms of economic-impacts/costs
Site selection “long-listing” criteria
Industrial economics and dynamics
Presence of potential project partners and anchor tenants (e.g., multiple enterprises engaged in formal, registered economic activity, within 10km), including historical presence of relevant sectoral activity in the area and scope for backward and forward linkages
Declared private sector support
Accessibility and connectivity(existing or reliably planned)
Access to major motorways and roads (<2km)Access to appropriate airports, railways / dry-ports, and/or border posts (<50km)Access to labour and consumption markets (<50km)Proximity (<50km) to upstream raw materials and/or distribution centre for semi-finished inputs (sector-specific)Proximity (<150km) to downstream processing and/or distribution points
Infrastructure(Existing or reliably planned)
Social infrastructure : schools, hospitals, hotels, retail business, places of worship, etc. (<50km)Access to water (<2km) In terms of access to fresh surface-water or aquifers (possibility of boreholes), or distribution networksAccess to power grid (<15km)Access to telephony networks, earth-stations and/or cell towers (<15km)
Environmental conditions Whether or not a Protected Area
Micro-siting criteriaAvailability of land
Immediate and verifiable availability of land of appropriate scope and dimensions
Availability of expansion land capacity
Topographical and construction constraints
Acceptable level and grading conditions
Acceptable soil and subsidence conditions
Acceptable erosion conditionsAcceptable drainage conditions
Acceptable soil contamination conditions
Acceptability of other construction constraints
Infrastructure(Existing or reliably planned)
Access to waste water treatment and sewerage infrastructure (<15km)
Existence and reconversion possibilities of existing structures
Presence of External and Internal roads
Distance (1km) from dangerous infrastructure (e.g., power station and high-tension lines etc.)
Environmental conditions
Climate (sector specific)Flood area
Human conditions
Appropriate and usable site from cultural standpoint - Tribal areas and rights, social sustainability to be taken into account
Sufficient consumer purchasing power (only applicable for local market -oriented projects)
Security (minimal legal distance from military installations to be respected)
Presence of significant archaeological, religious, cultural or other assets
Absence of health risks (e.g., malarial zone)
Socio-economically acceptable population relocations
Cost-acceptable economic relocation of any agricultural, commercial, or other industrial activities
Development influence
Positive impact on infrastructure planning
Coherence with other development projects in area
Coherence with land-use master-plans
How important is infrastructure to SEZs?• Key for industrial zones or parks• Not the only or main consideration for SEZs –given issues of:
– Macro and political-economic issues– Existence of markets / market access– Location / Transport economics– Factor Costs– Policy compliance costs– Knowhow to regulate and operate SEZs– Quality of Life– Country image
• On the other hand…– Visible and irreversible commitment – “open for business”– Integrates and Promotes efficiency– Movement of Goods– Sector Specialization
Sustainable yet flexible Master plans responding to changing local and regional economic conditions
• Emphasize goals and guidelines as opposed to planning prescriptions
• Allow for flexible land use and zoning• Phasing and Options• Private sector SEZ development and the profit
incentive• Ongoing monitoring of economic conditions and
benchmarking of competitor SEZ responses
Land use planning
• Type of land uses permitted: Problem of industrial focus
• Lack of control over the process and SEZ approaches to:– Planning department consents under City Master
Plan– Development/Construction Approval Processes– Zoning Regs., and Urban Building & Design
Codes/Guidelines
Apply for Construction Permit
Professional Designers for DrawingsInvestors
Construction underway (supervision/site inspection)
Construction completed(site inspection)
Apply for Occupancy/Operating Permit
Apply for Construction Permit
Local Government
Environment Authority Zoning AuthorityPublic Health TransportCulture and Antiquity Water/SewageAgriculture ElectricityLabor Authority TelephoneIndustry Neighborhood org.Tourism, etc.. Fire Department, etc..
B. (EIA) Environment Impact Assessment
Investors
Prepare EIA Report
Local EnvironmentAuthority
Ministry of EnvironmentApply for EIA Approval
------ ---
A. Site ElectionCentral Government
Line Ministries and Authorities
C. Construction Permitting Operation Permitting
Apply for Construction Permit
Professional Designers for DrawingsInvestors
Construction underway (supervision/site inspection)
Construction completed(site inspection)
Apply for Construction Permit
Construction Permitting AuthorityZoning AuthorityTransportationWater/SewageElectricityTelephoneFireEnvironmentNeighborhoodEtc..
Districts Counties Etc. Etc.
INVESTORS
State Land Authority
LandRegistration
Dev
elop
men
t Con
trol
Pro
cess
es
Fast-track development control
• GIS for underlying information needs• Reengineered processes• Certified Architect/Engineer/QS responsibility• OSS (ex: GIC in Gauteng)• eLand Management solutions– Titles– Permits– Valuation & tax management– Utilities management– Mortgages and hypothecation
Mitigating risks in infrastructure development
• Serious (not “stacked”) feasibility studies – Multiple site options– Market testing– Sensitivity analysis
• Leverage existing infrastructure• Designate SEZ land before awarding any contracts for related infrastructure
construction to minimize risk to cities of borrowing for infrastructure construction that may not be recovered from land sales
• Factor in off-site costs (ex: DRC, Baikal)• Phase site development to minimize the financial risk• Serious transaction advisors and good contracts• Transparent procurements, proper due diligence• Carry out the approved projects efficiently • Plan for developer default and the manner in which the land will be disposed of
Illustrative Risks & Solutions at Construction Stage
Risks Solutions
Completion Delays Experienced Turn-key contractorPenaltiesLiquidated DamagesCompletion / Performance Guarantees
Cost Overruns Fixed Price / Lump Sum contractStand-by Credit FacilityIncreased Equity
Force Majeure Insurance
Country Risk GuaranteeExport Credit Agency Cover
Illustrative Risks & Solutions at Operation Stage
Risks Solutions
Raw Material Supply Feedstock contracts
Market Market StudyOff Take Agreements
Performance / Technical Proven TechPerformance Guarantees
Operations / Maintenance Experienced Operator
Foreign Exchange Flexible Tariff FormulaForeign Exchage GuaranteeEscrow Accounts
Risk Management in SEZ Contracts
• Clear definition of assets• Clear definitions of roles and responsibilities of parties• Periodic testing/benchmarking and re-pricing mechanisms or
Phased Development Options• Liability caps• Insurance / Bond / Contingency Fund requirements• Step-in rights• Subrogation rights• Legal Stability Clause• Contract and Legal Primacy• Choice and Language of Law & Jurisdiction• Fast-Track Dispute Resolution Mechanism
Importance of secure and financially sustainable utilities supplies
Source: World Bank (Farole, 2011)
Soft infrastructure
• Human capital– Public– Private
• Finance• Social Infrastructure & Suprastructure– Community infrastructure– Inside vs. Outside?– Green Space
Relationship of physical planning to financial and economic analysis
• Zones should show net socio-economically and financially positive returns
• Siting, scope, scale, length of development, and design impact NPV and RoR financials –where the RoI is below 10-15% it is not bankable
• Economic analysis generates EVA and ERR –which are largely conditioned on (opportunity) cost of development (as well as of regulation, operation, training) vs. economic returns –and determine whether SEZs are the optimal policy tool to achieve economic goals
• South Africa is considered a case study in IDZ infrastructure over-scoping
Anchor Tenants
• High-profile multinational enterprises acting as anchor tenants demonstrate attractiveness of SEZ and draw in other new tenants, linkages
• Allow Anchor Tenants to influence SEZ design• Representation on Board• Concessions, with special, differentiated
incentive packages• Choice to build their own factory/warehouse or
lease an SFB
Infrastructure for sector development
• Why are zones so generic?• Provide specialised vertical public goods,
policy risk mitigation and other enablers:– Infrastructure and Facilities – R&D, Production and Delivery Services– Training and Knowledge Sharing Platforms– Incentives– Business Policies
The need for a public role
• The issue of regulation• Long-term infrastructure investment is not an attractive private
sector investment• Large scale infrastructure investment requires vision and the
ability to reap economic as well as financial benefits• Accepted norm that nationally shared infrastructure is
bankrolled or guaranteed by Government• The need to ensure the convergence of public and private
sector interests– Measurement of ALL costs and benefits to all parties (environmental,
social, etc.)– Examination of the counterfactual – what would happen if the public
investment were not made• Adjacent use issues
Institutional arrangements and the role of different spheres of government in SEZ infrastructure
• Existing Metropolitan or Regional Authority runs SEZ (ex: China, Aqaba)
• New SEZ City (Subic Bay, Panama Pacifico)• New, multi-stakeholder Development
Corporation• Coordination Councils
Generating spill-overs into the local economy
• Site SEZs where there is an existing economic and skills base
• Use PPPs• Also:
– Avoid minimum export requirements– Avoid minimum capital requirements– Avoid capital controls– Supplier & Buyer Linkage, Incubation and Training programs– Accord constructive/deemed export status of supplies to SEZ
buyers– Complement SEZ policies with national reforms
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