China’s Special Economic Zone experience… seven things Jamaica has learnt

“If we are to seize opportunities to promote China’s all-round development, it is critical to expand the economy.” – Deng Xiaoping

China’s economic development over the past 35 years is nothing short of remarkable. Its journey to becoming ‘the factory of the world’ holds several important lessons in industrial development, attracting foreign direct investment and economic diversification. Although China’s journey is a complex one filled with a variety of policy prescriptions, one policy tool stands above the rest – special economic zones. The strategic and focused use of special economic zones (SEZs) as a development tool holds a special – pun intended – place in China’s story. And as Jamaica embarks on its own journey using its modernized SEZ framework, China’s journey holds valuable insights into the remarkable transformational power of SEZs.

What makes special economic zones special?

There are various definitions of SEZs, however, in the simplest of terms they are “geographically designated trade areas that are used to attract foreign investors and boost industrialisation. They generally have trade laws that differ from the rest of the country and companies are offered tax incentives to set up operations.” (What can Africa learn from China’s special economic zones? By Yejoo Kim, World Economic Forum).

SEZs come in a variety of forms, names and functions – Free Trade Zones, Free Zones, Export Processing Zones, Enterprise Zones, etc. – that reflect a government’s priorities and positioning of its economy. However, what unifies them all is that they are development tools used by governments to attract, and facilitate investments that act as catalysts to diversify whole or targeted segments of their economies.

A journey of a thousand miles begins with a single step

For China its SEZ journey began in the late 1970s/early 1980s as part of Deng Xiaoping’s economic reform and opening up of China to the world. The first SEZs were set up along China’s southern coastal areas in 1980, and most famously in Shenzhen. SEZ became China’s windows to the world. The SEZs, especially Shenzhen were an immediate success attracting by 1981 over half of China’s total foreign direct investment (FDI). The success story of China’s SEZ continues today and will for the foreseeable future.

Jamaica has set itself an ambitious goal and programme through its national development plan to “make Jamaica the place of choice to live, work, raise families and do business.”  A critical element of Vision 2030 is transforming Jamaica into a global logistics hub which includes bringing together Jamaica’s geographic and other advantages with land, sea, air and technological infrastructure to support Jamaica’s modern industrial development. The ultimate aim of the global logistics hub is to increase the length, width and depth of Jamaica’s participation in global supply and value chains.

This increased participation or value addition may come in a variety of forms that would see Jamaica and her people expanding their skills and expertise in research and development, design, production, logistics, marketing or services, etc. in a range of industries.  For Jamaica, much like China, special economic zones, are a ‘special’ vehicle to increase its participation in the global economy.

The seven things

It is certainly true that Jamaica can learn many important lessons from China and other countries in the use of SEZs as a tool for economic development, however, to my mind here are seven of the most important:

  1. Special Economic Zones are not a panacea: SEZs while important are not an economic magic bullet and are not a cure all for a country’s entire economic woes. They do not stand by themselves but form part of a larger economic reform programme, for China that was Deng Xiaoping’s opening up of China to the world and for Jamaica it is Vision 2030 and the global logistics hub.
  2. On and off-site infrastructure integration: One of the most criterial factors that contribute to the success or failure of zones is availability and integration of adequate and appropriate infrastructure inside and outside of a zone. This infrastructure – land, sea, air or technology – must not only be fit for purpose but must be networked together to create value for stakeholders (workers, government, investors, etc.).  Much like China, Jamaica, albeit on a smaller scale, has been developing and integrating its multimodal logistics infrastructure.
  3. ‘Soft’ infrastructure is as important as physical infrastructure: Having the right business environment is critical to attracting investors. The laws that the zones operate under, just like the physical infrastructure, have to be adequate and appropriate – fit for purpose. This is much more than just cutting red-tape but it’s about bureaucracies being facilitators and delivering government services as value additions. Investors must have confidence that it is easy to invest, their investment is safe and the operations of their investment will not be compromised by excessive red-tape.  This, in part, is the very reason China and now Jamaica created the zones.
  4. Incubation for larger economic reforms: Reforming an economy is no easy task and one that cannot be done overnight no matter the size of the economy (Jamaica vs. China). However, SEZs offer policy makers an opportunity to experiment with a variety of reforms with limited risk to the wider economy. SEZs, in this regard act as incubators to test and refine reforms before rolling them out to the wider economy. The incubation of reforms gives policy makers policy room to create strong test cases done under as-close-to local conditions that increase the opportunity for success when rolled out in the wider economy.
  5. Efficient and effective administration: The efficient and effective administration of the SEZ regulatory environment is a self-evident, yet often understated success factor for SEZs. This goes beyond attracting and facilitating investments, as important as that is, into due diligence, long term assessment, planning and on-going monitoring of investors and their investments to ensure that they align to the country’s goals and policy priorities. In its Special Economic Zone Authority, Jamaica much like China has created a mechanism to do just that.
  6. Linkages: The phrase a rising tide lifts all boats defiantly describes the economic benefits of China’s SEZ development, however, this rising tide was not incidental and was planned for. One of the great development effects of SEZs are their spill-over effects into the rest of the economy. However, for these impacts to be meaningful and sustainable forward and backward linkages have to be forged by deliberate policy direction and actions. Jamaica’s SEZ policy and law recognize this fact and have created several mechanisms, particularly aimed at small businesses, to accomplish this.
  7. Developing a skilled labour pool: China realized early that it was not enough to have a cheap labour force but it had to have an educated one as well. What is more, China also recognized that in developing in its skilled labour pool, it was important that it match its skills training with the needs of current and future industries. In fact, over time China’s skills training development became an integral part of its investor targeting, innovation and over-all economic growth strategies. For Jamaica education and training are critical components of Vision 2030 and the global logistics hub.
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Placing the Hanjin bankruptcy in a global shipping industry context

To understood the Hanjin bankruptcy is to understand the current state of the global shipping industry. And if Hanjin is any thing to go by, and it is, the picture isn’t good. However, it is not all doom and gloom as the shipping industry is in the process of reorganizing itself and of this Hanjin saga is simply a part.

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A lifeline for Hanjin or a delay of the inevitable?

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A business component roadmap to Jamaica’s logistics centered economy

How is the Hub being implemented? What are the timelines? What is the economic value proposition? How is Jamaica positioned relative to other major hubs? What’s the difference between a transshipment hub and a logistics hub? What is the role of emerging markets such as China? What type of industries will be attracted to the hub? What strategy will be used to attract the leading global companies in the field of logistics? How will the hub be financed? What are the opportunities for local businesses? Answers to these and other questions will lead to a better understanding of the transformational nature of the initiative.

The document below is a bit dated however it still provides a comprehensive overview of Jamaica’s global logistics hub thrust.

lhi-business-component-roadmap
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International Financial Services: Dubai and Abu Dhabi authorities collaborate

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The expanded Panama Canal and port expansion along the US East and Gulf coasts

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The Exit in Brexit

Article 50 of the Lisbon Treaty might be short but it is a very powerful clause that determines how a country leaves the European Union (EU). This in effect is how make the exit in Brexit work.

The BBC  has done nice graphic of the steps the UK will have to take under Article 50.

Brexit steps

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Chicken Rearing: Sustainable Supply Chain Management Storymap

This StoryMap is by one of my students, Leitha Lacy,  from the Excelsior Community College in Kingston, Jamaica. It is his project submission for the Sustainable Supply Chain Management course.

Here she tells a sustainability story on chicken raring.

The views expressed are those of the student and not of this author or this blog.

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Is it time for Electronic Free Trade Zone?

Is it time for Electronic Free Trade Zone?

The Executive Chairman of the Alibaba Group, Jack Ma, seems to think so. In his recent address at the St. Petersburg International Economic Forum he called for the establishment of online free trade zones. These e-hubs would be focused on increasing the participation of small business in global trade who due to their size often face challenges plugging into the global market place.

But what exactly is an Electronic Free Trade Zone?

Free Trade Zones go by varying names depending on the policy objectives and priorities of the country that implement them.  However, no matter the policy objectives or name, Free Trade Zones bare  – Special Economic Zones (SEZ), Free Zones, Enterprise Zones, etc – have some commonalities. According to the World Bank they are defined as:

Geographically delimited areas, usually physically secured (fenced-in), single management/administration, eligibility for benefits based upon physical location within the zone, separate customs area (duty-free benefits) and streamlined procedures.

Free Trade Zones are development tools used by governments to attract, and facilitate investments that act as catalysts to diversify whole or targeted segments of their economies. Logically then an Electronic Free Trade Zone would simply therefore be an electronic version of the above. In other words an e- commerce tool used to by governments to attract investments that would act as catalysts to strengthen the participation of small businesses in global trade. The idea then of a Electronic Free Trade Zone is an intriguing one indeed. This especially true where focused on giving small business opportunities to trade globally.

However, there is one major issue that needs to be addressed. And that is if Free Trade Zones are “geographically delimited areas” by definition they are bound by being physical defined places. However, electronic platforms by definition are not so bound. Therefore, we seemingly have a contradiction here. So did Jack Ma get it wrong?

Not necessarily.

To find out why I think so, stay tuned for part II.

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Cocoa: Sustainable Supply Chain Management Storymap

This StoryMap is by one of my students, Sackeiph Hutchinson ,  from the Excelsior Community College in Kingston, Jamaica. It is his project submission for the Sustainable Supply Chain Management course.

Here she tells a sustainability story on Cocoa.

The views expressed are those of the student and not of this author or this blog.

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