economic zones as tools of development strategy in iraq
DESCRIPTION
Presented at the 5th Meeting of the Working Group on Investment Zones in Iraq, MENA-OECD Investment Programme. 28 April 2013, Cairo, EgyptTRANSCRIPT
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Asif Hasnain, Senior Economic Development Expert, UNIDOThomas Flynn, MENA-OECD Investment Programme28-29 April 2013, Cairo
Economic Zones as tools of development strategy
United Nations Industrial
Development Organization
UNIDO Iraq Programme Office
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Why Presentation
• Align government thinking on economic zones • Define different levels of issues in the overall strategy for economic zones
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UNIDO Iraq Programme
Office
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Content and Structure Presentation
• Development Goals• Policies• Tools• Technical Issues
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UNIDO Iraq Programme
Office
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Iraq’s Development Goals and Policies and Tools
• Iraq’s National Development Goals (Objectives)– Employment – Economic Diversification– Private Sector Development – Technology Development – Regional Development
• Policies (Means)– Private Sector Development– Trade – Technology Transfer– Human Resources Development – Etc.
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UNIDO Iraq Programme
Office
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What are the tools to realise goals?
• Fiscal and budgetary tools• Trade policy• Investment policy
– Economic Zones
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UNIDO Iraq Programme
Office
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Economic Zones
• Purpose of Economic Zones – What are Economic Zones?
● Geographically delimited area, usually physically secured (important in post-crisis contexts)
● They offer benefits based on physical location within the zone (and can have a separate customs area and streamlined procedures - World Bank 2009)
● Designed to stimulate domestic and/or foreign investment and production● Provide a range of incentives and services to hosted companies ● Poles of growth● In Iraq’s case, all should be aligned to work towards fulfiling development goals
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UNIDO Iraq Programme
Office
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Context in Iraq
• Why Economic Zones? Why different types?– Shift from a state-based approach to work with private
sector and local institutions– Can support economic diversification efforts– Address weaknesses in economy– Different kinds of zones, depending on policy objectives
● Industrial zones, investment zones, Export processing zones, Free Zones, Technology Parks
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UNIDO Iraq Programme
Office
USAID 2012
JAPU Iraq
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Economic Zones
• Zones share many things– Security, infrastructure, and licensing– In many successful instances, similar legal regimes
• Policy defines the different kinds of zone – Investment Zones offer incentives oriented to attract foreign investors
● Sector targeting, developing new industries, and attract FDI● Close collaboration with an anchor tenant
– Industrial Zones: both domestic and foreign investors● Especially in manufacturing and support services
– Export Processing and Free Zones work under specific customs regimes to facilitate regional/international trade
– In other countries, technology parks and business incubators are focused (sectoral) facilities designed to facilitate technological diversification
– None of these different types of zone are competitive as concept
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UNIDO Iraq Programme
Office
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Investment and Industrial Zones (Suggestions)
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Extent of support services and incentives providedLeve
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lUNIDO Iraq Programme
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Industrial Zone
Technoparks and Incubators
Independent Enterprises or
Clusters
Investment Zone
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Current issues in Iraq vis-à-vis zone development
• Advantages: – Growing market – Certain potential advantage for trade – strategic location (East-West corridor)– Land and natural resources availability– Oil and gas sectors offer opportunities for diversification
● Provide capital for investment
– Skilled labour force
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UNIDO Iraq Programme
Office
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Current issues in Iraq vis-à-vis zone development (cont.)
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Current issues in Iraq vis-à-vis zone development
• Challenges:– Co-ordinate stakeholders (central and local governments, private sector…)– Develop zone administration and legislations to allow for flexibility
● One-stop shop, how to delegate authority?
– Weak level of infrastructure– Undefined financing options for zone development – Productivity gaps between hydrocarbons and the rest of the economy– Dependence on SOEs– Risk of ventures into new sectors and costs of self-discovery
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UNIDO Iraq Programme
Office
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Moving forward with industrial and investment zone development
• Unified SEZ Strategy, connected with an overall industrial development plan– Streamlined legal and regulatory framework, work with what is there– Co-ordination amongst stakeholders – creation of zones in Iraq should not be the
work of one institution only, can have multiple institutions
• Development approach: regulatory or administrative approach?
• Involvement of the private sector in the design and management of zones– Management contracts, then direct investment infrastructure and services, then
PPP?
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UNIDO Iraq Programme
Office
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Moving forward with industrial and investment zone development (cont.)
• Approach to development – decentralisation and clear sharing of roles and responsibilities
● Central Government: Legal/regulatory framework, land allocation, incentives, investment promotion, financing, sovereign investment guarantees
● Local Governments: Zone management, licensing, infrastructure and security provision, services, land, holding municipal authority (construction permits etc. …)
• Where do we start? – Key is to define different policy objectives for different kinds of zone– Mechanisms of developing and administering zones can be relatively the same
across the types● Many models of: contracting to private providers of support services to privately developed and
managed zones● Iraq? State defray risk
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Economic Zones in Poland
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Source: PWC
UNIDO Iraq Programme
Office
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SEZ Attractiveness
• Location: Heart of Europe– Access to Germany, Russia, and former USSR
• Cost: Low labour costs, but skilled– 750 EUR avg. monthly remuneration
• Structural funds and national programmes intended for investment grants and creation of new jobs– Offered to Polish enterprises
• Infrastructure
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Katowice SEZSource: Gilwice.eu
Source: DAFZ.ae
UNIDO Iraq Programme
Office
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●Problem identified locally (e.g. collapse of the main employer)
●Awareness raising and mobilisation of local stakeholders
●Negotiation locally and co-ordination with central government
Political initiative
●Allocation of land
●Special Economic Zone status granted
●Financing of main infrastructure/utilities
●First investors attraction (role of domestic investors)
Zone development
●Support to develop further investment projects
●Provision of business support services to hosted companies
●Zone promotion and expansion (geographical or thematic expansion, e.g. from SEZ to technological park)
Zone management and
promotion
Polish Model of SEZ Development
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UNIDO Iraq Programme
Office
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Results
• 14 SEZs in 143 cities and 203 municipalities• 1222 companies operate in the zones based on 1466 permits • The value of carried out investments is 27 billion USD
– Micro-economic value
• State aid via tax exemptions (company tax – CIT) from the beginning of the functioning of zones until the end of 2011 was 4 billion USD which is 13.2% of the incurred investment costs
• 250,000 persons are employed in SEZs, of which 183,000 are newly created jobs
Source: Polish Ministry of Economy.
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UNIDO Iraq Programme
Office
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Lessons learned from the Polish Experience
❧ A specific, reviewed legal regime to ensure successful and sustainable development
❧ Have a clear policy objective❧ Role of Polish domestic companies/SMEs ❧ Co-ordination amongst stakeholders❧ Relevance of the Polish “bottom-up”/decentralised approach ❧ Relevance of having a clear and appropriate incentive system.
– Financial incentives in Poland, in Iraq? ❧ Relevance of a clear investment promotion strategy and an institutional
support framework – – One stop shop and business support services
❧ Zone development revitalisation of State-Owned Enterprises and support the transition from planned economy to market economy
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UNIDO Iraq Programme
Office
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Moving forward with zone development
• Must move the effort forward to develop SEZs forward– Look to governorates What role NIC can play? What role can the PICs play?
● Poland example
• Emphasise the commonalities between zones– Flexibility of zones– Possible: Take advantage of organic growth possibilities, what can the Iraqi private
sector offer? then, work with foreign investors– Need for a successful example – develop a zone, see what works, trial and error
• Need for co-ordination amongst stakeholders• Possibilities for a single legal framework, but can still have multiple zone
authorities
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UNIDO Iraq Programme
Office