The Special Economic Zone model 1 comments

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The rise of Asia is touted to be the great big economic story over the next few decades, and billions of dollars are being poured into this story. However, it might as well be seen as the rise of the big emerging markets: vast in geography and therefore possessing huge reserves of natural resources, populous in citizens and therefore possessing abundant cheap labour and a consumer market with untapped potential. Besides China, we have India, Russia, Brazil (these four make up the popular BRIC theme), Indonesia, Pakistan, Vietnam, Mexico --- all these are huge countries that possess the above characteristics and are now seeking to emulate the rise of China.

The biggest problem with growing a large country economically is that capital can be spread thin if attempts are made to homogeneously distribute them. Being erstwhile developing nations, infrastructure is typically underdeveloped -- communication (telcommunications) and transport links (road, rail, airport) are often backward, and power and water shortages are routine (a big example is India). Hence the idea of special economic zones: privately-run zones usually under private-public equity ownership, typically coastal areas, intended to be oases of world class infrastructure, offering duty-free incentives and streamlined procedures. In China, they were developed as "special economic zones" (the title of this article) ---- India's and Indonesia's upcoming developments follow this concept; in Mexico they named it "maquiladora" (or border industrial parks, since they were set up along the border, separating the USA from Mexico); in Pakistan and Vietnam, as export processing zones.

This concept is obviously not new, but the success with which China has been able to mobilise foreign investment into the surrounding areas of its SEZs and multiply their effect is going to popularise this developmental framework in coming years. For China, SEZ development started with 6 SEZ cities following 1978 with the most successful being the regions of the Pearl River Delta (Guangdong province), the model was extended to the Yangtze River Delta (Shanghai) and Tianjin, and recently with the "Go West" economic development programs centering around Chongqing and the Western regions. (As an aside, I would compare the framework to the German warfare concept of blitzkrieg --- concentrate resources at great speed to acquire critical mass, then encircle and attack). Some of the more visible global developments include the passing of the SEZ Act in India in 2005 to promote development of special economic zones, hailed as one of the biggest pushes for industrial expansion in post-independence India; the recent push by Indonesia to develop potentially >10 SEZs for the future; legislation allowing for the establishment of "special economic zones" introduced in mid-2005 in Russia and its subsequent plans for 6 SEZs.

The reason why I include this trend in my writeups is because there is great potential for Singapore property development and construction companies to capture a piece of this pie. There has already been extensive past experience in exporting our industrial park development experience to places like the Batam Industrial park and the Singapore-Vietnam Industrial Park, and of course the outstanding Suzhou Industrial Park (which became successful only after the Chinese got a majority stake --- one of their little idiosyncracies). It is worth noticing that in the trade missions abroad, one of the value-adds the Singapore delegation always proposes is that of urban/industrial planning and development --- there is great respect for the Singapore industrial development experience. There are plans to develop a large SEZ the size of the Batam Industrial park (typically SEZs have been very small in India) in India to bring in a range of industries, to help set up two of the six Russian economic zones, to develop Batam, Bintan and Karimun as the spearheads for Indonesia's SEZ plans, and recently an emerging colossal market in a Middle East keen to implement sustainable development on their petrodollars.

The obvious beneficiaries would be property and urban developers with experience in doing urban and industrial park/economic zone planning, such as public-turned-private Surbana (formerly HDB) and CPG (formerly PWD) for example. Sembcorp has extensive experience in industrial parks. Keppel Land is already developing townships in China. At the same time, tag-on sectors like Singapore construction companies (eg. Lee Kim Tah, BBR) and equipment/service providers (eg. construction equipment rental companies like Tat Hong) are poised to benefit. This is because the popular operational mode of Singapore private enterprises in going abroad now is in consortium mode, providing a vertically-integrated range of services from planning to construction and maintenance. For example, companies have banded themselves into a Singapore Building and Infrastructure Consortium in bidding for Middle-East mega-projects. The Japanese construction companies have done this to great effect in the past.

References:
(1) Dawn.com article Nov 2002: Economic zoning: strategy for development
(2) Economist article Oct 2006: India's Special Economic Zones
(3) SAWF News article Oct 2006: Row brews in India over Special Economic Zones
(4) Channelnewsasia report Jan 2006: Singapore exploring possibility of developing SEZ in India
(5) Outsourcing Russia.com Dec 2005: Six Special Economic Areas To Be Created In Russia
(6) EE Times article Aug 2006: Singapore will help launch Russian economic zones
(7) Lawandtax-news.com article Jun 2006: Singapore And Indonesia To Establish Special Economic Zones
(8) Lawandtax-news.com article Jun 2006: Singapore And Indonesia To Establish Special Economic Zones