Plans for a Pilot Investment Zone Second Meeting of the Working Group on Investment Zones in Iraq 23-24 November 2011, Istanbul Christelle Monteillet Iraq Project Advisor, MENA-OECD Investment Programme
Overview Aqaba Special Economic Zone (ASEZ) Tangiers Med Complex Options and recommendations for Iraq
Aqaba Special Economic Zone Aqaba Special Economic Zone (ASEZ): Located at the crossroads of three continents and three countries (Egypt, Israel and Saudi Arabia) Covers an area of 375 km² towards the south of Jordan Established through the Aqaba Special Economic Zone Law No. 32 of 2000 and launched in 2001 as a duty-free, low tax multi-sectoral development zone Regional energy hub and multi-modal transportation hub (road, sea, and air)
Aqaba Special Economic Zone Investment sectoral targets: 50% in the tourism industry 30% in a variety of services 13% in heavy industry 7% in light industry Key factors to attract investments: Low land and construction costs International airport and seaport Cultural, historical and seaside attractions Incentives
Aqaba Special Economic Zone Wide range of incentives: Flat 5% income tax on net profit Exemption from annual land and building taxes on utilized property Exemption from taxes on distributed dividends and profits Duty-free imports of goods in commercial quantities No foreign equity restrictions on investments No foreign currency restrictions Full repatriation of profits and capital Streamlined labor and immigration procedures 100% foreign ownership Up to 70% foreign labor Availability of land for lease (up to 50 years) and sale Full guarantees on rights and ownership
Aqaba Special Economic Zone Aqaba Special Economic Zone Authority (ASEZA): Zone regulator reporting directly to the Prime Ministry Governed by a Board of Commissioners of 6 members Autonomous powers and regulatory independence Mission: develop ASEZ into a leading center of commerce, trade, industry, leisure and education in the Middle East
Aqaba Special Economic Zone ASEZA s One-Stop-Shop: Automated business process for obtaining required permits and licenses 14 entities housed in one place to ensure required workflow to obtain necessary clearances for issuing permits and licenses Account executive is assigned to assist investors through the business start-up process
Aqaba Special Economic Zone Aqaba Development Corporation (ADC): Zone developer mandated to implement the ASEZ Master Plan and develop both the infrastructure and superstructure Established in 2004 as a private shareholding company governed by a board of directors and owned through a 50/50 joint venture partnership between the government of Jordan and ASEZA Owns the port, airport, significant parcels of land and certain utilities, and retains development and management rights for other projects
Aqaba Special Economic Zone ADC objectives: Enable ASEZA to focus exclusively on its regulatory function Accelerate development by introducing private sector principles, practices and imperatives to planning and implementaton of development projects Facilitate greater access to market-sourced capital Eliminate potential conflicts of interest within ASEZA by separating its regulatory and development functions Insulate key development decisions from political influence
Aqaba Special Economic Zone ADC partners with the private sector to implement key development priorities on a stand-alone basis or through Public Private Partnerships (PPP) Examples of PPP implemented: Port: Aqaba Container Terminal (REFOT) JD 800M (US 1.1 billion) Airport and Logistics: Aqaba Logistics Village (Concession) JD 28M (US 39 million) Real Estate and Enablers: Aqaba International School (MA) JD 5M (US 7 million)
Aqaba Special Economic Zone Stakeholders involved with ASEZ promotion activities: Jordan Tourism Board (JTB) PB Jordan (private operator/manager of Aqaba International Industrial Estates) ADC ASEZA Rationale behind ASEZ joint promotion efforts: Cost sharing Uniform and strong marketing message Avoid duplication of promotion efforts
Aqaba Special Economic Zone Source: USAID
Tangiers Med Complex Strategic location on the Strait of Gibraltar: Direct access to major East/West shipping routes without ship deviation Captures the North-South routes serving Africa and South America
Tangiers Med Complex Integrated project ensuring the development of a coherent combination of: Two ports (Tangiers Med 1 and Tangiers Med 2) A high-capacity rail link and road Industrial zones (Melloussa Industrial Zone, under construction) Free trade zones (Tangiers Med and Tangiers Free Zone [TFZ]) Areas of urban development
Tangiers Med Complex Source: Université de Picardie
Tangiers Med Complex Tangiers Med 1: Commissioned in 2007 as an industrial and logistics port integrated into the global trade network Capacity of 3 million containers (which should increase to 8 million by 2016) Platform accommodating all import-export related traffic Tangiers Med 2: Under construction since June 2009, operational in 2014 Objective is to strengthen long-term potential of Strait of Gibraltar and become major hub for shipping containers Capacity of 5.2 million containers
Tangiers Med Complex Infrastructure: Over EUR 20 billion investment in the infrastructure connecting the port to nearby roading and railway system Inauguration in 2008 of the 54 km long Tangiers-Tangiers Med motorway (EUR 400 million) which strengthened the port's competitive edge on land Opening of the 48 km-long railway line in 2009, connecting the port of Tangiers Med to the national rail network (EUR 300 million)
Tangiers Med Complex The Tangiers Mediterranean Special Agency: Responsible for planning, development and management of Tangiers Med Port Complex and the industrial platform Established by Moroccan government in 2002 as unique representative of the State for all Tangiers Med project partners TMSA mission: Build the Tangiers Med Ports Play the role of the Port Authority Develop a platform built on the industrial port and the container terminals
Tangiers Med Complex TMSA mandate: Authority over the port: construction and maintenance of port infrastructures award of concessions to private actors to operate port facilities promotion of port development Territorial control over the entire Tangiers Free Zone Authority over public utilities (water, electricity) Plan and finance development and land use over the region and develop educational, training, health and environmental programmes in collaboration with local authorities
Tangiers Med Complex Tangiers' Free Trade Zone (FTZ): Established in 1999, operating as an export processing zone focused on agri-food, textiles and leather, metallurgy, mechanical, electronics, chemical and high-technology 500 hectare site managed by the Tangiers Free Zone Company, a subsidiary of the TMSA group Various incentives for investors: Exemption from various trade-related duties and legislation Exemption from a range of taxes, including patent tax (for 15 years), urban tax (for 15 years), corporate income tax (for five years), capital gains tax and value added tax (VAT)
Tangiers Med Complex TFZ One-Stop-Shop: Source: OECD
Tangiers Med Complex Key figures: 475 companies with 30 different activities 47,000 jobs created in 10 years USD 700 million worth of investments French automobile manufacturer Renault will start manufacturing operations in the TFZ in 2012: Target of 400,000 vehicles produced annually for export to Europe and West Africa and 80,000 for the Moroccan market 42% of the new car components expected to be sourced locally Suppliers expected to locate in an area dedicated to automobile manufacture of 60 hectares near the Renault factory in Melloussa
Iraqi Objectives Objectives set by the Iraqi National Development Plan 2010-2014 (NDP): Diversify the economy and exports away from the current heavy dependence on oil Complete the transition to a private sector led, market economy by strengthening the private sector Create 3-4 million jobs to reduce employment, especially the very high rates of unemployment amongst the young
Sectoral focus and location options Iraq s ten most competitive sectors 1 : 1. Plastics 6. Fisheries 2. Cement 7. Telecommunication 3. Petrochemicals 8. Financial Services/Banking 4. Pharmaceuticals 9. Poultry Production 5. Tourism 10. Agri-food Processing 1 Iraq Competitiveness Analysis Final Report, May 1, 2006, USAID Izdihar Project (Iraq Private Sector Growth and Employment Generation)
Sectoral focus and location options Creation of six economic zones with a sectoral focus: Hatein: Manufacturing Baghdad International Airport: High-tech, communications and services Basra Province: Transport and logistical services Al-Anbar Province: Construction, glass and ceramics Nineveh Province: Specialized mechanical industries Middle Euphrates: Foodstuff industries Establishment of Special Economic Zones or Investment Zones through a specific implementation regulation based on Investment Law No. 13 of 2006
Sectoral focus and location options Feasibility study: Comparative study of one or several potential sites Central themes: site selection, sectoral focus, funding and management models (including PPP) Carried out by a prestigious and independent internationally recognized consulting firm Detailed study of investment protection measures to identify legal protection reforms needed
Financing Mechanisms Options for establishment of public economic zones in cooperation with private sector: Public provision of off-site infrastructure and facilities (utilities, connections and roads) while private funding targets on-site infrastructure and facilities Build Operate and Transfer (BOT) approaches to on-site and off-site infrastructure including government guarantees and financial support Contracting private management for government owned zones (beneficial ownership) Equity shifting arrangements with a purchase option once pre-defined performance levels have been reached
Financing mechanisms Advantages of Public-Private Partnerships: Reduce the burden placed on public resources Increase zone efficiency by allowing them to operate under market mechanisms Long term perspective Additional capital Alternative management and implementation skills Value added to the users Better identification of needs and optimal use of resources Sharing of risk with the public partner
Financing mechanisms Build-Operate-Transfer (BOT) concept: Private investors receive a concession to finance, build, and operate a facility over a set period of time, in exchange for the right to charge the users of the facility At the end of the concession period the facility is turned over to the state Advantage: obtain infrastructural facilities with greater efficiency and speed, without the state taking on the financial responsibility BOT framework should be based on a clear definition of rights, responsibilities, obligations and commitments of the private and public sector parties
Financing mechanisms Key elements of a PPP procurement process include: Proactive and reactive identification of opportunities Market testing (reaching out to prospective developer groups) Clear, unambiguous selection criteria and process Agreement structure and tender documentation Competitive selection processes Pre-qualification to ensure suitable, experienced partners and long-term project success Broad stakeholder representation throughout the process
Management mechanisms Regulating authority: NIC Managing authority: Transferred to a private shareholding company governed by a board of directors, and owned through a 50/50 joint venture partnership between a zone users association and the PIC In charge of developing the off-site and on-site infrastructure of the investment zone contracts with private companies (BOO)
Management mechanisms One-stop shops: Automated business process model: provide all approvals and licenses and assist private developers in establishing the zone, and private users in establishing their investments within the zone All government entities involved with the investment licenses authorization process represented within each one-stop-shop Automated workflow between the entities involved in the process Assistance provided to investors through dedicated account executives
Marketing and promotion activities NIC strategy: Investor driven: open approach to allow investors to make propositions Strategy driven: definition of sector priorities such as electricity, housing, and investment zone development
Marketing and promotion activities Promotion targeting and costs split between the NIC, investment zone boards and developers: NIC: General market penetration Promotion of the general investment environment in Iraq Overview of the various investment opportunities available Investment zone boards: Promotion of specific sectors and industries present within the zone Organization of outward promotion missions in cooperation with NIC Private developers: Project specific support and information on specific projects Concentration on follow-up activities such as closing business deals with prospective investors
Marketing and promotion activities Target priority markets on a sectoral basis and define specific objectives in terms of number of: Investors per site Services offered Critical success factors Competitive advantage and unique selling point Resources and budget
Marketing and promotion activities Promotional efforts conducted should encompass: Promotional material Trade fairs (exhibiting or attending) Mail-shots Market Research (self/commissioned) Website design/management Public relations/journalist visits/press conferences Site visit
Conclusions and recommendations Investment zones are temporary or second-best options compared to economy-wide improvements Preferable option is a regime providing similar benefits and facilities countrywide Zone should demonstrate the benefits of efficient administration and sound infrastructure Enable a country to experiment with new administrative procedures or systemic innovations before extending them countrywide Vector to promote local businesses
Conclusions and recommendations Policies supporting local suppliers (Moran): Creation of a stable macroeconomic environment with low inflation rates for locally-owned businesses to operate in Reduction or elimination of impediments to operations of local firms through lowering import tariffs and allowing them access to adequate infrastructure (including via investment zones) Enlarging the supply of both capital and skilled labor (workers, technicians, engineers, and managers) available to local firms Encouraging skilled and experienced zone employees to establish businesses Promoting links between zone companies and local trading and educational institutions