There’s been a fair bit of media flying around about Special Economic Zones (SEZs) in relation to their application in regional New Zealand. Kicked off by another great piece of research from the NZ Initiative.
As Wikipedia puts it…In SEZs, business and trades laws differ from the rest of the country. To encourage businesses to set up in the zone…policies are introduced. These policies typically regard investing, taxation, trading, quotas, customs and labour regulations.
Financial incentives in my view generally don’t work with the only winner being business, who are being rewarded for shifting their business somewhere or entering into a market or industry. Subsidies are only slightly better in that they are more targeted to industry or location type initiatives. The problem with both incentives and subsidies is that money has to come from the public purse, I.e. Shifted from one part of the economy to the other. NZ has very few incentives or subsidies after the market reforms of the last 40 years so to reintroduce them now would be interesting to say the least!
Special Economic Zones are widespread in China. They were set up among other reasons to transition certain geographic areas of Chinas economy into a more market focused economies and to act as a controlled test bed of policies. In many instances the focus has been about attracting Foreign Direct Investment (FDI) and all the benefits that come from that. A huge spinoff has been the ability for provincial and local government and companies to enable homegrown industry to develop around the the foreign companies. Do not underestimate the importance of foreign investment on China’s economy or their Special Economic Zones.
I support Special Economic Zones in both the thinking behind them and the potential but before we roll them out in NZ let us answer these questions:
1. Do we understand all the different parts of the economies and are they working together? The Special Economic Zones I’ve seen did incredibly well at connecting all the parts of economies that need to which was easy to do with everything within a 100km, but that’s not too different to regional NZ is it? It wasn’t just about taxes, planning or infrastructure. It was innovation, entrepreneurship, industry development, education, the environment and more.
2. Are there projects that are investment ready? A key platform of Special Economic Zones is foreign investment, so who is spending time with investors to understand what investors want and is regional NZ ready for Special Economic Zones that could consist of largely foreign investors?