The United Nations recognizes the impulse that Free Zones generate for developing countries. The organization highlights the value generated by global and regional value chains.
By María Camila Moreno, Executive Director Association of Free Zones of the Americas (AZFA)
The latest report of the United Nations Conference for Trade and Development UNCTAD, reveals that to date more than 5,400 Special Economic Zones operate in 147 countries around the world (understanding SEZ as Free Zones, since more than 70 terminologies used in the world). This growing number of SEZs, since the last census carried out by a multilateral organization in 2008 indicated that there were 3,800, corresponds mainly to the fact that countries are increasingly using these mechanisms to attract foreign direct investment, formal job creation, promotion of to exports, technology transfer and production chains.
To date, Latin America has 660 Free Zones, these are home to more than 10,700 companies that generate 1,030,000 direct formal jobs and more than two million indirect jobs. Additionally, exports from the region’s Free Zones amount to USD 55.7 billion per year and currently in countries such as Costa Rica 57% of exports are generated from Free Zones, in Uruguay 31%, in Honduras 49% and in the Dominican Republic 58%. This reflects the importance and relevance of the instrument for the region; not only as great generators of investment and employment, but also as key links for the economic development and foreign trade of the countries of the region.
Successful cases in the region
The numbers speak for themselves; In Costa Rica today, the contribution of the Free Zones regime to the country’s GDP corresponds to 11% and the latest PROCOMER report estimates that for every dollar exempted from the Free Zones regime, it generates a return of USD 2.4. The Free Zone regime generates more than 187,000 jobs and it is estimated that 6 out of 10 new formal jobs are created under the Free Zone mechanism, in addition, the average salary in the Free Zone is 1.2 times higher than the average outside the Free Zone. Costa Rica has been characterized by its program of productive linkages with the local economy, and that is why 43% of purchases come from local purchases.
The Dominican Republic is another case to highlight in the region. It is estimated that this year the Free Zones in the country will achieve a historical record in employment generation, reaching 200,000 direct jobs. To date, the contribution to the country’s GDP corresponds to 3.6% and its exports 60% of the country’s total exports. The country has been characterized by having an excellent public-private relationship, and consequently, today it is recognized for having great legal stability for investors. The last country return report indicates that for every dollar exempted under the Free Zones regime, these generate 11 times of benefit – country.
Uruguay, another case to be highlighted in the region, with 11 Free Trade Zones, the country has 1,070 installed companies that generate more than 15,700 direct jobs and contribute 4.8% to the country’s GDP. In Uruguay, for every dollar exempted, the Free Zones generate a return 6 times higher. Additionally, 5.6% of the total investment of the economy comes from Free Zones.
In addition to the highlighted countries, it is worth highlighting the progress made by other countries such as Panama, where the Free Zones Commission approved the operation of 6 new Free Zones, with an initial investment of USD 23 million and an expectation of generating more than 16,500 new jobs. , adding to the 43,000 direct jobs generated today by the three main mechanisms of Free Zones in the country (Private Free Zones, Panama Pacifico and Colon Free Zone).
In the countries of the Northern Triangle, the mechanism also stands out for its importance for their economies. In Nicaragua, with its 53 Free Zones and 224 installed companies, 120,000 direct jobs are being generated and they generate more than 52% of the country’s total exports. Likewise, in Honduras, with its 39 Free Zones and 289 installed companies, they are generating 50% of the country’s total exports. Finally, in Guatemala, the new Free Zones Law was approved, which seeks to recover 45,000 direct jobs that were lost in 2016 due to the instability of the regime that occurred that year.
Global Alliance of Special Economic Zones
On June 13, under the umbrella of UNCTAD, 7 of the existing world and regional Free Zone Organizations joined together to establish the Global Alliance of Special Economic Zones. This alliance, because the United Nations recognizes the enormous economic contribution and sustainable development that Free Zones generate in developing countries. Additionally, it highlights the great value that these generate to global and regional value chains, as catalysts for linkages with the local economy and diversification of their economies.
Opportunities in a crisis “cocktail”
The global economy is entering a new generation of Special Economic Zones that present challenges and opportunities that come mainly from great movements such as the industrial revolution 4.0, sustainability and geopolitics.
External and internal movements in the economies are rethinking industrial and foreign trade policies in all the countries of the world; pandemic, container crisis, climate change, shortage of chips for manufacturing, lockdown in China, inflation in the United States, labor shortage, war in Ukraine and increase in the price of energy. All these factors that are influencing the governments, companies and people of the region, who know how to interpret it and are strategic, can become the best moment for the modernization and potentialization of the Free Zones of the region that are called to success if Governments and the private sector work hand in hand.
SOURCE: DIARIO LA ECONOMÍA