Jamaica’s Special Economic Zones: Form, function, and model

Special Economic Zones (SEZs) come in a variety of forms, names and functions – Free Trade Zones, Free Zones, Export Processing Zones, Enterprise Zones, etc. These 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.

Special Economic Zones Defined
While Special Economic Zone (SEZ) come in a variety of configurations they generally have six common features:

  1.  A geographically defined area that is usually fenced in.
  2. Is under a single management or administration.
  3. Flexible and streamlined business regulations.
  4. Businesses operating within the zone are eligible for benefits (tax incentives) from being located in the zone.
  5. Support infrastructure that is designed to optimize the operations of businesses. Additionally zones are located proximate to key transport infrastructure such as port, airports, highway interchanges, that are used to facilitate the business operation of the zones.
  6.  The zone is considered a separate customs area.

The Purpose of SEZs
SEZ framework for hub

The general positioning of modern special economic zone regimes is their use by governments as a strategic tool in a larger economic development strategy or plan.  SEZs, for Jamaica, are a tool within a larger logistics hub development model that is being used to grow the economy through industrialization. As a tool within a larger growth strategy, Jamaica’s SEZ regime is designed to improve Jamaica’s competitiveness and create jobs, attract business and capital.

The activities within the SEZs are aimed at fully integrating the Jamaican economy into the global production and distribution systems that rely on global value and supply chains. This complex and dynamic system, at the heart of globalization, places Jamaica at a critical intersection of global trade, investment and services. In a globalized environment companies face several conflicting demands simultaneously, for example there is an equal drive to both centralize and decentralize production and distribution. Additionally, companies must balance global and local demands at the same time in the sense of being able to produce and distribute worldwide but at the same time adjusting product specifications through postponement to meet the local taste of consumers through customization.

Jamaica’s Global Logistics Hub, largely through its SEZs, creates a platform where global trade, investment and services will intersect and interact. The SEZs provide the ideal one stop shop location for meeting the simultaneous, and often conflicting, demands of the marketplace in a flexible, efficient and reliable manner.

Free Zone to SEZ: a new policy direction
The name change from Free Zone to SEZ is not a simple matter of form over substance. The SEZ concept is a deliberate policy break away from past policy and is intended to send a clear signal to the investor community (domestic and international); the multilateral lending agencies; and the WTO that Jamaica is moving in a new policy direction.
The Free Zones of the past were largely export processing zones reliant on non-World Trade Organization (WTO) compliant export performance fiscal incentives, the SEZ on the other hand move beyond export processing and is fully WTO compliant.

The Jamaica SEZ model
SEZs are purposed built and fully serviced sites aimed at improving the competitiveness of manufacturing and services. They are founded on the principles of improving efficiency, clustering of complementary value added services, and seamless integration into the global value chains, low corporate taxation and a business friendly environment.
These principles, however, are not self-applying. They have to be implemented systematic and this is where the Jamaica Special Economic Zone Authority (JSEZA) comes into play. JSEZA is the government body charged with regulating, monitoring, supervising, promoting and facilitating investments in SEZs in Jamaica. Through the work of JSEZA SEZs investors will facilitate and be facilitated by:
a. Developing world class industrial infrastructure, supported by world class transport infrastructure (road, rail, airport and ports) that function as trade facilitators;
b. Competitively priced energy;
c. Increase cargo flows through increased transshipment throughput; increased imports as inputs into production (SEZ and domestic); and increased exports as semi or finished goods (SEZ or domestic) that have the Made in Jamaica label;
d. Optimize and analyzing cargo flow information to seek out, attract and manage higher value-added logistics activities; and
e. Create backward linkages to the rest of economy through our Micro, Small, Medium Enterprises (MSMEs) through the sourcing of domestics raw materials as inputs into production and by subcontracting of local service providers.

As such Jamaica’s SEZs will be focused less on fiscal incentives and more on providing a platform to meet the efficiencies demanded by the global marketplace. Central to this are ‘soft’ -using government services as – incentives  inherent in regulatory relief such as expedited investment, construction, work permit approvals, and streamlined and efficient Customs inspection. The move to place greater reliance on business and trade facilitation reflects not only international best practice but also reflect a growing global trend of governments using their regulatory functions as services to investors, in effect non-fiscal incentives.

WTO compliance
The WTO prohibits subsidies in particular export performance and local content subsidies. Under its WTO obligations Jamaica has phased out its offending subsidies and has gone as far as repealing its Export Free Zone Act and replaced it with the Special Economic Zone Act, 2016.

Fiscal incentives
Generally the incentives offered under a SEZ regime will not be considered to be subsidies provided that the benefits are not focused on export performance, the use of domestic content, not set up to primarily benefit a specific industry or business, nor for the maintenance of foreign exchange balances. The new SEZ regime’s fiscal incentives focus therefore includes lower corporate income tax, duty free importation of raw materials and no General Consumption Tax (GCT) on electricity and telephone services. Jamaica has gone further and followed global best practice and included performance based mechanism such as employment tax credits for job creation that facilitate the lowering of the corporate income tax rate.

Share

Related Posts:

Jamaica’s special economic zone framework designed to support private sector SEZ development

Its always a good idea to review your past work and accomplishments from time to time, you just never know what you will find.  Such a review brings to mind the old adage what is old, is new; reviewing after some time gives you perspective and at times new insights. Conducting such an exercise led me to remember my participation as a panelist in 2014 on a Government of Jamaica policy dialogue: Jamaica’s Growth & Special Economic Zones Policy Dialogue. Some how I posted an article on my LinkedIn but not on Commercial Law International. What an oversight!

This oversight on my part has come to be a blessing in disguise as it allows me an opportunity to put out an article on Jamaica’s special economic zone (SEZ) policy and legislative framework, with particular focus on attracting private sector investment. This is especially timely given the continued roll out of Jamaica Special Economic Zone Authority, the Government of Jamaica’s, agency charged with regulating and attracting investments to zones in Jamaica.  While this piece is a bit dated it never the less provides in brief some useful insights, in particular for the private sector, into the policy and legal framework of SEZs in Jamaica.

Enjoy.

I was honored to be siting on the Private Zone Development, Joint Ventures and PPP Panel discussion today. Maybe its the nerd, sorry, I mean lawyer in me that gets so excited to talk about Special Economic Zone development models….its all about structuring the deal.

Me (Ainsley Brown) deep in preparation before the panel discussion

Me (Ainsley Brown) deep in preparation before the panel discussion

Please see the session brief below:

The Government of Jamaica (GOJ), in an effort to preposition itself in the world as a Global Logistics Hub, has identified Special Economic Zones (SEZs) as a key policy tool in achieving this objective. The main focus of SEZs is to attract foreign direct investment, diversification of the Jamaican economy, job creation and the increase in value-added exports. Policymakers are aware of the fact while economic zones bring about economic growth; they are not limited within themselves. The real value of economic zones depends on their ability to stimulate widespread growth through linkages with the domestic economy and to catalyze nationwide reforms by serving as pilots.

Drawing from numerous examples of successful SEZs around the world as well as Jamaica’s own experience with its existing Free Zone regime, the GOJ, is acutely aware of the potential direct and indirect impacts that could be realized by developing a modern SEZ regime as a tool for sustainable and globally competitive economic development. The GOJ, in order to realize the SEZ potential, has launched an effort to develop a new SEZ policy regime for Jamaica based on good economic and social practices in their operation and commercial principals in their development and management. Considering the vast investment potential of SEZ’s in Jamaica, the GOJ appreciates the importance of understanding the relevant economics, structures and processes that drive the successful implementation of SEZs. In this regard, the GOJ places great significance on the role of the private sector in SEZ development.

Given GOJ’s funding constraints, namely under the current IMF Loan Programme, the SEZ Policy encourages the private sector to play an active role in the Jamaican Special Economic Zones. The Policy envisages public private partnerships (PPP), joint ventures (JV) and private zone development in the development and operation of SEZs. This offers the potential for a number of different models. However, developing SEZ under PPP and or JV model has several commercial complexities as both the public and private sector need to bear some roles and obligations.

Greater involvement of the private sector in the development of zones reduces the burden placed on public resources and increases the efficiency of zones by allowing them to operate under market mechanisms. International experience reveals that a significant number of governments developed and managed zones have been less effective than their private counterparts. In order to facilitate private development of zones, an appropriate legal, regulatory and institutional framework should be in place. The Government’s main role would be to regulate economic zone activities, promote the zone regime, and aggressively identify, assemble, and make available land suitable for development through PPPs or JVs or private development.

Purpose of the session

Panelists will discuss the mechanisms to encourage and facilitate SEZ development in Jamaica (PPP, JV or private). The viability of any SEZ due to the highly capital intensive nature of their development, is dependent on finding adequate and appropriate types of financing to support a deal structure; panelists will discuss structuring and financing deals in PPP, JV or private infrastructure development.

Share

Related Posts:

Top 10 best reads to understanding Jamaica’s SEZ Regime

Here are the top ten best reads to understanding Jamaica’s Special Economic Zone Regime and the mandate of the Jamaica Special Economic Zone Authority.

Top 10 best reads to understanding Jamaica's SEZ Regime

 

Share

Related Posts:

A business component roadmap to Jamaica’s logistics centered economy

How is the Hub being implemented? What are the timelines? What is the economic value proposition? How is Jamaica positioned relative to other major hubs? What’s the difference between a transshipment hub and a logistics hub? What is the role of emerging markets such as China? What type of industries will be attracted to the hub? What strategy will be used to attract the leading global companies in the field of logistics? How will the hub be financed? What are the opportunities for local businesses? Answers to these and other questions will lead to a better understanding of the transformational nature of the initiative.

The document below is a bit dated however it still provides a comprehensive overview of Jamaica’s global logistics hub thrust.

lhi-business-component-roadmap
Share

Related Posts:

Is it time for Electronic Free Trade Zone?

Is it time for Electronic Free Trade Zone?

The Executive Chairman of the Alibaba Group, Jack Ma, seems to think so. In his recent address at the St. Petersburg International Economic Forum he called for the establishment of online free trade zones. These e-hubs would be focused on increasing the participation of small business in global trade who due to their size often face challenges plugging into the global market place.

But what exactly is an Electronic Free Trade Zone?

Free Trade Zones go by varying names depending on the policy objectives and priorities of the country that implement them.  However, no matter the policy objectives or name, Free Trade Zones bare  – Special Economic Zones (SEZ), Free Zones, Enterprise Zones, etc – have some commonalities. According to the World Bank they are defined as:

Geographically delimited areas, 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.

Free Trade Zones are development tools used by governments to attract, and facilitate investments that act as catalysts to diversify whole or targeted segments of their economies. Logically then an Electronic Free Trade Zone would simply therefore be an electronic version of the above. In other words an e- commerce tool used to by governments to attract investments that would act as catalysts to strengthen the participation of small businesses in global trade. The idea then of a Electronic Free Trade Zone is an intriguing one indeed. This especially true where focused on giving small business opportunities to trade globally.

However, there is one major issue that needs to be addressed. And that is if Free Trade Zones are “geographically delimited areas” by definition they are bound by being physical defined places. However, electronic platforms by definition are not so bound. Therefore, we seemingly have a contradiction here. So did Jack Ma get it wrong?

Not necessarily.

To find out why I think so, stay tuned for part II.

Share

Related Posts:

Jamaica’s Global Logistics Hub: So Much More Than Ports

By: Ainsley Brown

Jamaica’s Global Logistics Hub, ports and so much more

What is the role for ports and airports vs the role for Special Economic Zones (SEZ) in Jamaica’s Global Logistics Hub Initiative?

Special Economic Zones (SEZ)

The simplest answer is that ports and airports, while very important, in the main facilitate trade and economic activity while the SEZs are the drivers of economic activity, economic development and wealth creation for the people of Jamaica.

‘Provide a reason and they will come’

Ships and planes need a reason to stop in Jamaica; it is not simply case of ‘build it and they will come.’ No! The proper way of thinking and developing industry, investment and commerce in Jamaica is to provide a reason and only then  will they come.

Jamaica needs to provide that reason or better yet reasons beyond what it currently offers; largely through  transshipment and tourist visits. If Jamaica is to develop/grow its economy and provide prosperity for its people  it needs to enhance its existing offerings but more importantly it needs to move beyond them and provide a suite of SEZ clusters  through which cargo, people and data can flow seamlessly.

These SEZs clusters, be they supporting maritime, aviation or industrial activities will provide the  impetus for the ships and planes to stop in Jamaica. The SEZ clusters will provide a ‘one stop shop’ environment  that will incentivize the many ships and planes that currently pass through our waters or airspace and do not stop to make Jamaica a port of call. What is more, the SEZs will act as a diver for those  that current don’t ply our waters or fly in our airspace to adjust their business models to meet the cargo, people and data flows from Jamaica’s Global Logistics Hub.

The Hub will make Jamaica the location of choice for  a ship or a plane to get repaired , re-fueled, re-crewed, re-provisioned but more importantly to pick up and drop off more than just transshipped cargo but cargo coming in as domestic inputs for production and cargo leaving as Jamaican made or assembled products.

Special Economic Zones: the heart of Jamaica’s Global Logistics Hub

Special Economic Zones, are therefore the primary economic drivers and job creators within the Jamaican Global Logistics Hub.

SEZs create value the world over; its Jamaica's turn.

SEZs create value the world over; its Jamaica’s turn.

They are geared towards value added activities, such as light manufacturing,ship/aircraft maintenance and repair,  business processing outsourcing, warehousing, production planning, (re)labeling, to name a few, and will take Jamaica beyond simply being a regional transshipment hub to a value added center – a Global Logistics Hub. Jamaica’s ports and airport will serve as facilitation mechanisms for cargo and people flows coming in and out of the SEZs.

Value Added Logistics Servic

 

 

 

 

 

 

 

 

 

 

 

Share

Related Posts: