What makes a successful free zone?

Every free zone is unique, designed for different purposes depending on the host territory. A developing landlocked country will not look for the same benefits as a mature coastal economy. Socioeconomic conditions will define the government’s goals for its free zone. These will shape the free zone’s structure, target clients and scope.

The success of a free zone is defined by the level of business excellence it achieves and by its economic contribution to its host government’s goals. These can range from boosting exports and jobs, to knowledge transfer and secondary benefits beyond the free zone itself. There are, however, core elements that a free zone must provide to fulfil its purpose.

A good match

The basic principle is to match the free zone’s design to the country’s development priorities and to the means a government can access. This requires prudent investment in a specific industry sector that is sustainable over time, possibly with a private development partner. Free zone benefits can sometimes take longer to materialise than initially expected and careful investment planning will account for that. The aim is for long-term benefits to flow smoothly and continuously into the host economy.

It is also important to set up a free zone within easy reach of reliable infrastructure that is relevant to the industry sector served. This includes adequate physical as well as human assets, along with efficient administrative procedures. For example, a hi-tech-focused free zone in a country with poorly trained labour resources will fail, as will a manufacturing free zone without effective transport routes to ports and cities.

Moreover, in the digitisation era, it is equally crucial to offer simple administrative processes that leverage technology to better serve free zone clients. Without these elements, a free zone may fail before it even starts.

Reliable regulation

Finally, a free zone is only as strong as the regulation it provides. A reliable legal framework is essential to convince clients to set up in a free zone. This demands good governance tools to ensure adequate compliance. Important rules to define include environmental policies, labour standards and even safety. Along with concrete incentives, specific regulation is one of the most effective tools to attract investors. The key is to structure these advantages to ensure everyone extracts appropriate benefits in a sustainable way.

Free zones can only prosper if marketed properly. This requires an adequate budget for regional promotion to encourage collaboration and synergies, and global promotion to attract investment from multinational enterprises active in the global value chain. Only then can free zones truly deliver the local prosperity that they are meant to foster.

Dr Samir Hamrouni is CEO of the World Free Zones Organization.