World FZO Bulletin
Total Page：16
File Type：pdf, Size：1020Kb
World FZO Bulletin October 2015 I Issue 03 Dear Members, 1090, 1st Floor, 7W-B , Dubai Airport Free Zone World FZO is pleased to present our third quarterly Bulletin PO Box 371113, Dubai, United Arab Emirates of 2015. T +971 4 204 5473 F +971 4 299 3866 This issue explores the most important factors in attracting E [email protected] investments to free zones and includes a feature on Airbus Group W worldfzo.org whose regional headquarters are in Dubai Airport Free Zone Authority (DAFZA). Also in this issue, we provide overviews by fDi intelligence of the latest investments around the world on a regional basis. We would like to thank Jorge Mario Martinez Piva, Head of Unit International Trade and Industry, CEPAL, Mexico and Habib Fekih, President of Airbus Group Africa and Middle East for their valuable contribution to this issue. We hope that this issue provides you with an in-depth insight to global investments trends and on the industry of free zones. As always, we welcome your feedback and input on the Bulletin and on any of the other serviceswe offer. With best regards, World FZO Knowledge Unit “Articles [and/or videos] sourced from the Financial Times have been referenced and are used under license from the Financial Times Limited and were originally published in 2015. “FT and “Financial Times” are trade marks of the Financial Times Limited. The Financial Times Limited has not endorsed, verified or been involved in the creation of information provided from other sources in this publication, and is not responsible or liable for its accuracy, completeness and content.” Disclaimer: The views expressed in this bulletin are solely those of the authors and do not in any way represent the views of World FZO. © 2015 I World Free Zones Organization I Bulletin issue 03 1 Free Zones: attraction and By Jorge Mario Martinez-Piva consolidation Head of the International Trade and Industry Unit. UN-Economic Commission for Latin America and the Caribbean, Subregional of investments Headquarters in Mexico flows 2 © 2015 I World Free Zones Organization I Bulletin issue 03 © 2015 I World Free Zones Organization I Bulletin issue 03 3 estimates by the UNCTAD (2003) for middle-income developing The first strategy, focused on reducing production costs, Introduction countries to grow at rates that allow them to reduce the gap has been widely used in many developing countries and Public-private alliances that separates them from the developed countries, require for many of them it has been the only way to mobilize foreign Given that a combination of factors is critical for attracting and Policy makers have found an important tool for increasing stable investment rates of 25% of GDP. However, historically capital into their territory. However, this strategy exerts strong anchoring investment flows, how can countries identify the investments and facilitating production chains through the investment rates in many developing countries have been low. pressure on tax revenues and public resources by the process relevant set of factors to boost investments? How can countries establishment of Free Zones (FZ). These zones offer a set For instance, the gross fixed capital formation accounted for of tariffs reductions and increased tax exemptions. This improve these set of factors? Though there is no universal of factors that facilitate businesses, including factors that 21% of GDP in Latin America in the last 15 years, an insufficient raises two fundamental paradoxes: on the one hand, the tax formula to respond to these questions, according to a vast study increase business competitiveness, reduce operation costs rate that prevents countries from starting virtuous catching- waiver prevents the State from having sufficient resources of successful cases two factors are crucial: the development and and increases mobility and connectivity. up process (see Chart 1). For the above reason foreign direct for investment in public goods needed to improve their implementation of a medium - and long-term strategy to achieve investment (FDI) is of great importance for developing countries, competitiveness condemning the country to a low competitive economic growth and the support provided to this strategy by Free Zones have different names as they vary from country since it complements domestic investment increases linked equilibrium trap. On the other, the most dynamic and high- a public-private alliance (Devlin and Moguillansky, 2009). to country – Export Processing Zones, Free Industrial Zones, to the gross fixed capital formation rate. income sectors located in FZ do not contribute to the treasury, Free Trade Zones, etc. – However, in general, they relate generating a regressive tax system. A medium and long-term vision of development sheds light for to special regimes that promote investment and facilitate Gross Fixed Capital Formation, 2000-2013 private investors on future areas of development and provides businesses in a geographically defined area, commonly (in percentages of GDP) It is also important to underline that the cost reduction key information for investment planning. It also indicates the considered outside the customs territory of a country where strategy based on the reduction of taxes is the easiest to imitate, productive factors that will be created or strengthened by local special regulations apply. Firms located in these areas often 45 leading a race to the bottom competition among countries authorities, facilitating private investments decisions. receive tax benefits such as duty-free imports and tax by reducing regulatory and tax requirements. The main challenge exemptions as well as specialized public services – expedite 40 for countries implementing this strategy is designing a “new The success of this medium and long-term vision is greatly customs procedures, special security measures, etc. 35 generation incentives” to promote investment, moving from based on the capacity of organizing public-private alliances. a strategy based on cost reduction, to one in which companies These alliances require an open dialogue between policy For developing countries, the creation of Free Zones invites find further benefits by relocating into those countries. These makers and private sectors that facilitates the identification of exporting companies to relocate by offering a set of advantages. 30 new incentives can target investments in services, productive bottlenecks and its solution, as well as the creation of medium The conditions offered in the FZ for exporters offset the anti- 25 activities with higher value added, firms with intensive R&D to long-term arrangements. These alliances reinforce the mode export bias that may exist in some of these countries – poor activities, new environment oriented sectors and the creation of a countrie’s international insertion, bring timely responses to infrastructure, high tariffs on imported inputs, difficult access 20 of productive linkages between companies operating in the productive and investments constraints and creates mechanisms to products and components at international prices, export FZ and local businesses. In this new strategy, FZ play an for private and public sectors to remove them (Devlin and taxes, among others. For developed countries, free zones 15 important role by offering specialized services and attractive Moguillansky, 2009). facilitate the import and management of inputs that are part 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 factors that may be unique, facilitating the arrival of new firms. of complex supply chains. With increasing globalization, European Union Emerging and developing Asia In other words, FZ can help to overcome the low competitive The most successful public-private alliances cases were those FZ have become an important instrument to promote FDI Latin America and the Caribbean Middle East and North Africa equilibrium trap. with more stable dialogue and medium to long term agreements and through this, integration into global value chains. Sub-Saharan Africa USA Source: IMF, World Economic Outlook Database, April 2015 that provided a basis for consensus or public understandings The second strategy stems from the provision of special to underpin investments strategies oriented towards successful FZ are actually a complex set of instruments that seek multiple or unique investment factors. Location decisions are driven internationalization of the economy. goals simultaneously: to create the enabling environment for Although FDI is positive for growth, for the modernization at least for three main determinants: market seeking – being attracting FDI, facilitate businesses and create global value of the local business sector and for its international insertion, as close as possible to consumers –, efficiency seeking – Whether public-private alliances are formally structured, ad hoc chains, while the development of industries and services that it is an exogenous factor which should be considered to reduction of costs, timely delivery, energy access, etc. –, and ones, tacit or informal, or a hybrid of the above, has not proven complement domestic investment are encouraged. Given this complement local investment policy. FZ play the important role finally, special resources seeking – access to unique natural to be decisive. What is important is to have a serious public- complexity, it is important to identify the most important factors of matching FDI and local investments, serving national efforts resources or highly skilled labour. In real