Economic Development Zones

Transcription

1 Infrastructure Development and Financing Through Economic Development Zones MENA-OECD Investment Program and Iraqi Institute for Economic Reform Opportunities for Infrastructure Financing in Iraq 21 November 2009

2 Economic Development Zones in Iraq Feasibility Study on Economic Development Zones (EDZs) in Iraq: A comprehensive Feasibility Study concerning Economic Development Zones in Iraq has been completed with funding from the US Embassy Office of Private Sector Development, Strategic Investment and Housing. This feasibility study provides the research for this presentation on financing physical. Infrastructure. Copies of this study are distributed at this conference. The Feasibility Study covers four parts: 1. Background Description of Economic Development Zones 2. Overview of International Experience of Zone Programs and Selected Zones 3. Legal, Regulatory and Tax Review of Iraq 4. Economic Development Zones for Post-Conflict Economic Development in Iraq Part Four of the study includes seven sections : Introduction, Role of EDZs, Iraqi Economic Sectors, Potential Types of EDZs, Profiles of Business Models, Competitiveness, and Location-Specific EDZs. This presentation focuses on EDZs as a vehicle for developing and financing physical infrastructure, especially transport, power, manufacturing, central business districts / financial services, technology Please refer to final slide for details on contracting party for the Feasibility Study. 2

3 Why use EDZs to develop and finance physical infrastructure? EDZs are a practical vehicle to develop and to finance infrastructure EDZs are designed to form a package of Infrastructure Plus : + clear development strategy (such as transport, industry, finance) + policy reforms + incentives + business opportunities + all of which enable financing by both government budget and PPP 50 years of experience shows that EDZs work : + countries which succeeded in economic transformation use EDZs (China, S. Korea, Malaysia, Mauritius, Singapore, GCC, Holland) + World Bank indicates EDZs contribute 10% growth in China, 28% Sri Lanka EDZs not a panacea, but they are heavy lift policy instruments which combine development policy, operations, management and financing - the public policy equivalent of the joint stock company 3

4 K Re-thinking Economic Development Zones (1) Economic Development Zone (EDZ) is now a generic concept covering a wide range of types of EDZ. However, perceptions of EDZs are still influenced by the conventional concepts of EDZs which usually relate to Export Processing Zones like Panama, Jebel Ali, garment zones However, this conventional concept is out of date. Over 3,000 EDZs (including 1,200 private EDZs) in over 120 countries provide wide choice of innovative EDZ concepts beyond these conventional ideas Types of EDZ range from these Export Processing Zones, to a single diamond vault (Antwerp), to a single insurance regulation (New York), to whole industrial cities (Jubail), to Wide Area Economic Zones of millions of people (China). Examples are given in the Feasibility Study Increasing evidence from Middle East and elsewhere emphasizes the importance of the private sector in developing and operating EDZs Hence there is great scope to customize EDZs for the needs of Iraq - best EDZ for Iraq is the Iraqi design, not a copy from another country 4

5 Re-Thinking Economic Development Zones (2) EDZs have long history and emerged during 1960 s and 1970 s from pragmatic policy management rather than economic theory to introduce essential reforms in difficult policy environments to facilitate exports and growth EDZs are indeed introduced in selected areas when it is difficult to introduce broad policy reforms throughout the whole country Conventional economic theory therefore regarded EDZs as second option which undermines the first option of national policy reforms However, shifts in economic theory since 2000, using cost-benefit frameworks and endogenous growth theory, now recognize and quantify advantages of EDZs so that they are part of the first option There is still a risk that EDZs can emerge as economic health zones which perpetuate policy distortions in the rest of the country - but this risk can be controlled through careful design and planning 5

6 Re-Thinking Economic Development Zones (3) Concepts of EDZ need constant re-designing according to changing needs and priorities of Iraq Current EDZs in Iraq are Export Processing Zones (e.g. Al Qaim, Khor Al Zubair) supervised by General Commission for Free Zones, Ministry of Finance, and Industrial Parks supervised by the Ministry of Industry and Minerals. These are closer to conventional models of EPZs and municipal industrial zones than to contemporary concepts of EDZs Essential that EDZs contribute to overall national development strategy and development plans, and to sector development policies - otherwise they are piecemeal projects competing among themselves EDZ concepts involve economic and management concepts and associated policies for enhancing comparative advantage, competitiveness, clustering, supply chain management, zone and status, private sector involvement and PPP financing - hence numerous applications to enhance national competitiveness 6

7 Re-Thinking Economic Development Zones (4) New concepts of EDZ emphasize a policy package: 1. Physical infrastructure 2. Combination of investment incentives 3. Policy reforms 4. Hassle-free administration 5. Effective regulation (including private sector self-regulation 6. Range of sizes of EDZs to fit policy objectives EDZs are pragmatic policy instruments designed to: 1. implement economic, social and infrastructure development 2. overcome constraints to national and international investment 2. promote private sector investment and generate employment 3. introduce essential policy reforms in limited areas 4. launch development initiatives (such as advanced technology) 5. help market investment and development through brand image 7

8 How to use EDZs to develop and finance physical infrastructure The Infrastructure Plus approach provides the business model The business model is that the government creates the EDZ through : + setting development strategy (such as transport, industry, finance) + policy reforms for the EDZ + promotion of clustering + incentives for the EDZ (providing land and other listed below) + laws to establish the EDZ + these provide the business opportunities for example a new port will be more attractive investment if it is part of a national gateway strategy, and linked to manufacturing freezone, which creates demand for power, water. Private sector then franchised by government to build, own, operate (transfer) whole or parts of the infrastructure and EDZ management + private sector can respond to any infrastructure with a revenue stream + private sector often forms Special Purpose Companies for the contracts + SPCs financed by PPPs, with equity, bank and international agency loans 8

9 Typical Incentives and Facilities Package for EDZs in Iraq (1) Independent EDZ Authority as regulator and municipal / local authority EDZ Contractor as efficient project developer and EDZ manager Reliable, high-quality physical infrastructure Independent judicial system and dispute resolution procedures Efficient registration of legal entities Low or no customs duties Efficient customs procedures Tax incentives Relaxed labor rules No restrictions on repatriating currency, profits, or capital Guarantee against seizure of assets Efficient trademark registration 9

10 Typical Incentives and Facilities Package for EDZs in Iraq (2) Searchable business and intellectual property registries Ability to use international accounting standards and issue financial reports in foreign currency State-of-the-art information technology and telecommunications Vocational training institute, with human resource recruitment system (shelter plan) Institutional architecture range of professional institutions and business associations Cluster of technical and support services (e.g. quality and productivity center, business incubator, technical extension services, specialized companies for quality standards and testing, R&D center focused on particular industry of the EDZ) Positive policy environment, with parallel policies integrated with sectoral action plans for growth Purchase or grant of freehold land in EDZ (for major investors) 10

11 Potential EDZ Projects for Iraq (1) The EDZ feasibility study identified potential EDZs : 1. General Manufacturing, Transport and Logistics 2. Oil Refining, Petrochemical and Heavy Industry 3. Financial Services / Central Business District 4. Information, Science and Technology 5. Wide Area Special Agricultural Economic Zone 6. Multi-Modal Sea Transport Hub EDZ at Al Faw 7. Multi-Modal Air Transport Hub EDZ at BIAP Sea and air transport hubs are location-specific; location of others depend on industry-specific location criteria 11

12 Action Steps for Implementation of BDZs (1) Formulate and adopt EDZ Policy as part of National Development Strategy, 5 Year Development Plan and annual budget strategy to ensure coordinated development initiatives Pass Enabling Legislation in order to grant executive branch of government the authority to establish EDZs and determine their legal, regulatory, and tax framework with significant independence from government Adopt sector master plans and pass relevant legislation Pass Enabling Directives for EDZs in order to establish detailed provisions for regulation and operation of EDZs Promote EDZ development opportunities to encourage private sector investment in establishment of EDZs 12

13 Action Steps for Implementation of BDZs (2) Certain strategic decisions are required quickly in order to take advantage of major opportunities for Iraq. For example: 1. Opening up of West - Central Asia trade 2. New Eurasia landbridge transport routes 3. New transport technologies 4. Economic growth in the Middle East 5. BIAP s status as hub airport 13

14 Criteria Used to Select Locations for BDZ Business Models (1) Some EDZ locations pre-determined by the project (Hub Sea Port at Al Faw, Hub Airport at BIAP) Site selection is a complex process involving assessment of economic, financial, social, environmental, technological, and cultural factors EDZs are public investment projects; therefore, need to assess criteria both to advance best interests of EDZ as a project and to maximize public benefits and minimize public costs Most criteria for selecting locations for EDZs are related to type of EDZ clearly different factors for Pilgrimage EDZ and for Oil Refining EDZ 14

15 Criteria Used to Select Locations for BDZ Business Models (2) However, basic essential common location criteria include: 1. Availability of government freehold land 2. Safety and sustainability of the land 3. Availability of extensive water resources 4. Must already have or be close to supply of each essential utility (water, electricity, oil, gas, telecommunications connections) 5. Dynamic, creative and ambitious local political leadership, or strong and dynamic local private sector leadership 6. Must be close to actual or potential transport links 15

16 A Appreciation For Their Contributions We would like to acknowledge the following individuals for their valuable contributions to this summary document. Paul Savello, US Embassy, Iraq Transition Assistance Office, Ph.D., JD Alex Riemer, US Embassy, Office of Private Sector Development, Consultant 55

17 Feasibility Study and Summary TRC has completed a comprehensive Feasibility Study called Business Development Zones in Iraq. The Study, along with the eight appendices, was undertaken to provide those actively involved in economic development initiatives in Iraq with detailed information, analysis, and perspective in this area. The material presented in the Study may contribute to the basis of focused, effectively supported and coordinated development activities, and further policy initiatives for this important tool in building the Iraqi economy. TRC Feasibility Study and Executive Summary Presentation prepared by TRC Limited bdz@trc-international.com 56

18 Further Information The Four Part Study was contracted through the Office of Private Sector Development, Strategic Investment, and Housing of the US Embassy; Baghdad, Iraq. Inquiries may be made to the following contact: June Reed, Senior Advisor, US Embassy; Baghdad, Iraq Office of Private Sector Development, Strategic Investment, and Housing of