Using Special Economic Zones to connect to the world The role of Special Economic Zones in enhancing Jamaica's trade
No man is an island, entire of itself…
Jamaica has set itself an ambitious goal and programme through its national development plan, Vision 2030, 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. A strategic policy tool in accomplishing this goal are Special Economic Zones (SEZ).
Special Economic Zones
The Government of Jamaica’s Special Economic Zone Policy, tabled in the House of Representatives on July 21, 2015, defines SEZs as:
“Geographically delimited area, 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.”
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.
The centrality of the Trade and Logistics to the success of SEZs
The global logistics hub and SEZs are reinforced by Jamaica’s long standing support for the principles of trade liberalization and openness. The Special Economic Zone Authority and Logistics Hub Initiative fully endorses and support this long standing position and its continuation as a guiding principle in Jamaica’s Trade Policy. Liberalization and openness facilitate lower costs associated with trade and further enhances Jamaica’s attractiveness to foreign direct investment in logistics services and goods production.
Logistics has a direct connection to the trade in goods but is also a series of tradable services in and of themselves and increasingly has an impact on other services sectors (e.g. banking). Logistics is the connector; it is the service at each end of the manufacturing value chain that allows the whole global production system to function. According to the World Bank:
Logistics services has become critical for competitiveness. Better logistics performance is strongly associated with trade expansion, export diversification, ability to attract foreign direct investment and economic growth.
(Trade Dimensions of Logistics services: A Proposal for Trade Agreements, pg 5)
Therefore, as Jamaica positions itself as a global logistics hub the SEZs are the major policy tool being pursued by the GOJ to attractive investments in these services along with targeted segments of goods production.
Connectedness and Trade
A nation’s development and prosperity are increasingly joined to its connectedness to the rest of the world. In today’s world of globalization it is not sufficient to simply have market access, the ability to turn that access into market presence is a necessity. Logistics is critical link between market access and market presence Click To Tweet. Therefore, a nation’s connectedness should be thought of as part of a nation’s logistics capabilities.
Trade policies have been traditional guided by the concept of selling of goods in the global market place; however, with the rise of global value chains, a new type of thinking is required to reflect current business realities. This new reality is one where the global trading system is based on the production and inter-connectivity. Barriers to trade (tariff or non-tariff) therefore take on a whole new dimension for policy makers when examined from this angle.
SEZ and trade
Changes in the configuration of industrial production have contributed to significant shifts in international trade and offer small economies such as Jamaica, an opportunity to actively participate in global value and supply chains. Currently Jamaica’s participation in global value chains can be considered ‘shallow’ at best; just take a look at the statistics in the Global Entrepreneurship Monitor 2011 Jamaica Report, to see my point. The majority of entrepreneurs (64%) had none of their customers living outside of Jamaica, 14.3% of them had less than 10% foreign customers, roughly 8% had over 90% of their customers living in foreign countries and approximately 3% had between 50% and 90% of their customers based in other countries. The Special Economic Zones are a very real and tangible opportunity to fundamentally change this picture.
SEZs are a trade and investment platform used to grow jobs
The SEZ legal and administrative framework is designed to enhance and create important social and economic linkages within the Jamaican economy. The framework will help to:
(i) facilitate knowledge and technology transfer;
(ii) create high quality employment;
(iii) enable seamless integration of local businesses into global value chains.
In this regard SEZ should be viewed as export platforms for local businesses Click To Tweet that facilitate the reduction of the associated logistics, transport and administrative costs of trading across borders. The SEZs while physically located in Jamaica are an ‘international space’ and are a captive export market for local producers to engage global value chains without leaving the geographic boundaries of Jamaica.
SEZs and job creation
Globally, successful SEZ programmes have been linked with significant amounts of foreign direct investment (FDI) attraction and job creation. In fact the regional (Latin American and Caribbean (LAC)) experience speaks volumes. As stated by SELA (Sistema Económico Latino Americano), October 2012, free trade zones in Latin America and the Caribbean have facilitated the increase of investments, the creation of jobs, the creation of manufactured goods with added value, the development of clusters, especially with local suppliers, and the diversification of activities and services. The table below provides some empirical evidence of economic impact.
Table 2: Job Creation and investment in Central American free trade zones (SELA, October 2012)
Special Economic Zones and Economic Engagement
The international connections that Jamaica builds and maintains with other countries are of critical importance if it is to attract and retain the entrepreneurs, talent and investment it needs to grow. Jamaica’s ability to improve its connections depends, in part, on the nation building out what I call an economic engagement network, inclusive of countries and agreements that optimize Jamaica’s vision as a Global Logistics Hub.
There will be more on this economic engagement concept in later posts however in brief an economic engagement network is the series of international agreements that Jamaica has entered or seeks to enter that will benefit the Jamaican economy by creating the platform for greater trade and investment. Therefore an economic engagement network goes beyond trade agreements Click To Tweet. It is about how nations can improve their competitiveness by finding and creating value through the complex interplay between the various agreements (eg. trade, investment, double taxation, air service, standard, etc) that they enter between each other. This will require a total mindset change on the part of policy makers, businesses and workers alike to view these agreements not in isolation but as networks and platforms that support global value chains.
Special Economic Zones for Jamaica play a very important in its economic engagement networks. The SEZs facilitate Jamaica's the inter-connectivity to the rest of the world Click To Tweet, allowing for the freer movement of goods, services, people, capital and data. In effect the SEZs are a microcosm of the economic engagement network concept. Click To Tweet
Call to Action
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