Tuesday, April 10, 2007

SEZs are like the Curate’s egg: Good in parts



A little over 30 years ago, there were 80 special economic zones (SEZs)
in 30 countries generating about $6 billion in exports and employing
about one million people. Today, there are more than 3,000 SEZs in 120
countries and they account for over $600 billion in exports and 50
million direct jobs.

By offering privileged terms, they attract investment and foreign
exchange, spur employment, and boost the development of improved
technologies and infrastructure. Despite their appeal, SEZs have been
criticised on the grounds of attracting investment only by offering
distortionary incentives rather than building underlying competitive

It is argued that these incentives create a fiscal burden on the
taxpayer and hurt environmental and labour standards. In the eyes of its
critics, the direct and indirect costs of SEZs do not benefit the rest
of the economy and, instead, lead to enclaves of prosperity.

To its proponents, however, SEZs are a potent means of ensuring greater
employment and prosperity. Provided care is taken to ensure active
linkage programmes and adequate social and environmental safeguards,
they argue that private sector involvement in SEZ development and
operation can go a long way to ensure the benefits of SEZs are
maximised. SEZs, they claim, must be seen in the context of an overall
strategy to promote private sector-led growth, rather than as a
substitute for a good investment climate.

What has been the global experience with SEZs? Are they useful in
promoting private investment-led economic growth? What measures can
governments take to ensure that SEZs benefit the rest of the economy
through linkages? Why are some SEZs more successful than others? Do zone
ownership and management structures play a key role? Do SEZs promote
liberalisation or just give the illusion of an improved investment climate?

In the light of the on-going furore over SEZs in India it might be worth
re-visiting the debate. Unfortunately, close to half a century after
SEZs were first envisaged as a short-cut to speedy growth, the jury is
still out on whether these enclaves of excellence are really the way to
go. That lacuna, however, is partly made up by a World Bank sponsored
on-line discussion on SEZs, moderated by James Crittle and Gokhan
Akinci, that summarises the position as far as the debate on SEZs is

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