pontus-wellgraf-WTAnAMdPj2Y-unsplashFree Trade Zones (FTZs) and Special Economic Zones (SEZs) are popping up in many countries around the world. According to UNCTAD’s 2019 World Investment Report, they are now more than 5,400 of them in 140 countries, and their number increased by 26% between 2014 and 2018. Moreover, more than 500 are in the pipeline. These well-defined geographic areas provide a regulatory environment for business and investment that is more friendly than that of the host country -- they usually offer lower taxes, less regulation, and more services to business. Some countries such as Honduras even allow some of their zones to create their own civil legal system.

According to UNCTAD’s2019 Report, the countries with the most zones are (from highest to lowest number) China, the Philippines, India, the United States and Russia. Interestingly, the next five countries with the highest number of zones (Turkey, Thailand, Dominican Republic, Kenya, and Nicaragua) are generally less developed than the first five.

Despite the rapid expansion in the number of zones, the challenges they face are increasing. First, climate change and environmental concerns have forced many zones to invest heavily in sustainable power and water infrastructure. Second, zones are often located in depressed areas where it is difficult to attract highly skilled workers. This is causing them to invest heavily in infrastructure, attractive housing, and neighborhood amenities such shopping malls to attract adequate skilled talent.

Finally, global political uncertainty such as the current trade conflict between the United States and China, and the concomitant rapid rise of protectionism around the world is causing all manufacturing enterprises to face stiffer competition from foreign companies. In many cases that is most of their market. This makes planning more difficult and cumbersome. However, the superior business environment in the zones gives enterprises therein a competitive edge to offset the negative factors describe earlier.

economic development, Free Trade Zones, Free Trade

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