If designed right, SEZ can be drivers of trade and FDI: ADB

At a time when governments across the world have been scrapping Special Economic Zones (SEZs) for their lack of functionality, Asian Development Bank (ADB) on Wednesday said that a right business environment and policies can make SEZs a driving force for increased trade, investment, and economic reform.

“SEZs can be a driving force for increased trade, investment, and economic reform in Asia at a time when the region is experiencing a slowdown in trade, provided the right business environments and policies are put in place,” said a new ADB report. The Asian Economic Integration Report 2015, examined current trends in trade, finance, migration, remittances and other economic activities in the region, with a special chapter on the role of special economic zones.

“The expansion in the number of SEZs from about 500 in 1995, to over 4,300 in 2015, shows the strong and rising interest to this form of policy experiment, though the success record is somewhat mixed,” said ADB Chief Economist Shang-Jin Wei.

“If designed right, SEZs can become drivers for increased trade, foreign direct investment (FDI), and better economic policymaking and reforms. Moreover, as countries develop, areas with SEZs can be transformed from mere manufacturing sites to hubs for innovation and modern services,” he said.

The special chapter in the report notes that the number of SEZs in an economy is positively related to overall export performance in Asia. The report also finds that in Asia, countries with SEZs attract significantly more FDI, with the existence of SEZs corresponding to 82 per cent greater FDI levels.

Recently, the Indian government informed Parliament that 90 per cent of the area notified for setting up 58 special economic zones in different states in the last five years were lying vacant, implying the lack of interest in SEZs.