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The Special Economic Zone as a New Model of Economic Development



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By Mathew Rochat

On October 25th, 2021, a ceremony took place to celebrate the opening of Duqm Hongtong Piping Factory, the first factory in the newly developed Sino-Omani Industrial City located 300 miles from Oman’s capital, Muscat. The factory is located within the Special Economic Zone at Duqm (SEZAD), a once sparsely inhabited fishing village that has transformed into a coastal boomtown ever since its designation as a special economic zone (SEZ). SEZAD is one example among a growing number of SEZs that have spread throughout the globe in the past 50 years.

According to UNCTAD, there are now over 6,000 SEZs around the world located in nearly 150 countries. With as few as 79 SEZs in existence in 1975, their proliferation has been rapid. Though SEZs have been welcomed and promoted in many emerging economies ranging from India to Nigeria to Panama to the United Arab Emirates to Malaysia, no country has been more embracing of the SEZ-led development model than China. So, what are special economic zones, what explains their proliferation in recent decades, and where do they fit in within the 21st century global economic system?

What Are Special Economic Zones?

Referred to in some instances as “free trade zones” (not to be confused with “free trade areas”), there is a great deal of diversity when it comes to different types of SEZs, varying from high tech zones, industrial and eco-industrial parks, export processing zones, free ports, bonded warehouses, and more. SEZs are defined by the World Bank as areas “in a country that [are] subject to different economic regulations than other regions within the same country.” These areas are typically characterized by more liberal economic laws, offering advantages to investors who are physically situated within the zone such as duty-free benefits, tax incentives, relaxed labor and land-use restrictions, and streamlined procedures. SEZs are typically established with the aim of attracting foreign direct investment (FDI), accelerating industrialization, promoting technological innovation, creating jobs, boosting exports, experimenting with new regulations and policies, and supporting strategies of broader economic liberalization.

The Proliferation of SEZs

Though the concept of free ports goes back as far as the Italian Renaissance, the advent of the modern SEZ dates back to 1959 with the establishment of an international business park in Shannon, Ireland. The free trade zone was built in the vicinity of Shannon Airport, which had previously served as a transit hub and refueling station for trans-Atlantic flights. Anticipating that airplane technology would soon allow flights to bypass the area altogether, the then director of Shannon Airport developed a plan to transition the economy away from its dependence on commercial flights. This plan involved the creation of Shannon Free Zone (SFZ), which offered tax incentives and tariff reductions with the goal of attracting FDI. At present, SFZ is still home to some 170 companies and provides jobs for more than 8,000 employees.

Following the pioneering model of SFZ, other SEZs began to appear alongside airports, seaports, and border territories throughout the 1960s. With export-oriented industrialization (EOI) gaining popularity as a strategy for economic growth in East Asia in the 1980s and 1990s, the number of SEZs continued to grow, reaching approximately 3,000 by the turn of the 21st century. A key turning point in the history of SEZs is linked to Deng Xiaoping’s Open Door Policy, which led to the creation of the first SEZs in China in 1979. The goal of the Open Door Policy was to end China’s isolation and foster economic growth to compete with western industrialized democracies. Consequently, CCP authorities established four SEZs along China’s eastern seaboard in Shenzhen, Zhuhai, Shantou, and Xiamen.

Since that time, the SEZ experiment in China has been a remarkable success story. China’s explosive growth since the 1980s would not have been possible if not for these special economic zones that have accounted for as much as 22% of GDP, 45% of total national FDI, and 60% of exports. As of 2021, China is home to an estimated 2,500 SEZs in total. The successful experience in China has also sparked a new wave of SEZs throughout Asia in places such as the Philippines, Thailand, Indonesia, Laos, Cambodia, Vietnam, Malaysia and Myanmar. Outside of Asia, SEZs are also gaining traction in other parts of the world including Africa, the MENA region, and Latin America. In addition to hosting SEZs and serving as a model for SEZ development, China has also promoted the establishment of SEZs abroad through Chinese Overseas Economic and Trade Cooperation Zones. These state-supported ventures between Chinese companies and local partners are at the heart of the global infrastructure development strategy known as the Belt and Road Initiative.

A New Model of Economic Development

These enclaves of liberal economic activity represent a new model of economic development. What began as experimental, fringe elements of the global economic system in the 20th century are now transforming into central features in the 21st century. As a result of SEZs, many formerly undeveloped areas have experienced rapid growth. However, the question remains as to why countries don’t simply liberalize their entire economies? Why opt for small zones of capital development instead of embracing a market-based system more openly?

There are a few possible explanations for this. The first pertains to ideology, as skepticism of capitalism remains high. Leaders may be reluctant to impose radical and wide-ranging market reforms that merely imitate western models. In this way SEZs allow for small-scale experimentation as opposed to jarring systemic change that could risk engendering instability and unrest.

Second, full-scale liberalization is an expensive endeavor. Cultivating a prosperous environment requires a population that is healthy and educated with access to well-developed infrastructure such as electricity, plumbing, roads, and internet technology. Providing these goods for an entire population is simply not an option for many developing countries. SEZs provide a viable alternative that deploys scarce resources more selectively.

Third, emerging economies may feel that their domestic industries are not yet capable of competing globally. In such cases, full-scale liberalization could ultimately do more harm than good as producers would be thrust directly into competition against producers from advanced, industrialized countries. The previous experience of developing countries adopting structural adjustment reforms serves as a cautionary tale. SEZs, on the other hand, allow firms to benefit from access to outside investment, while remaining insulated from global competition.

Looking to the Future

The Duqm Hongtong Piping Factory in SEZAD embodies the growing trend of special economic zones, which now exist throughout much of the developing world. It is possible that SEZs may serve as stepping stones for more wide-ranging liberalization efforts. Alternatively, they may continue to represent a novel model of economic development. As a leader of the SEZ-led development model and one of the world’s largest economies, China will continue to shape the evolution of the global economic system, and along with it, the role that SEZs will play.

Courtesy: Modern Diplomacy

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Inquiry on General Babangida’s Involvement in Conventional Banking despite Introduction of Islamic Finance in Nigeria




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Dear Editor,

I hope this letter finds you well. I am writing to express my curiosity and seek clarification on a matter that has caught my attention, specifically pertaining to General Babangida’s involvement in the conventional banking industry despite his role in introducing Islamic finance during the financial reforms of his military government in Nigeria. Vide your special article commemorating his 81st Birthday published in your esteemed news website:

It is indeed noteworthy that General Ibrahim Babangida played a pivotal role in shaping the economic landscape of Nigeria by introducing Islamic finance principles. It is fascinating to witness the implementation of Islamic finance in Nigeria, as it promotes principles that align with religious and ethical values. General Babangida’s efforts to introduce this form of finance were undoubtedly commendable, reflecting his commitment to establishing an alternative financial system that adheres to Islamic principles.

However, recent observations suggest his active participation in the conventional banking sector in Nigeria. Certainly, it is intriguing to see General Babangida’s continued involvement in the conventional banking industry, which operates under different principles. While some may argue that his involvement in both sectors is simply a matter of personal choice, it raises questions about the compatibility of his actions with the ideals and principles of Islamic finance. While the former is interest driven, the latter prohibits interest related transactions completely.

I wonder if General Babangida has ever publicly addressed this matter or explained his reasoning behind being active in both sectors. It would be enlightening to hear his perspective on how he reconciles his involvement in conventional banking with his efforts towards promoting Islamic finance. This has raised questions in my mind and perhaps in the minds of others as well.

I am keen to understand the rationale behind General Babangida’s dual engagement in both Islamic finance and conventional banking. Does this reflect a strategic approach to diversify Nigeria’s financial sector, or are there specific reasons behind his involvement in conventional banking despite advocating for Islamic finance principles?

Additionally, it would be interesting to explore the potential impact of his dual involvement on the perception and growth of Islamic finance in Nigeria. Does his presence in the conventional banking industry hinder the progress of Islamic finance, or does it have the potential to bridge the gap between the two sectors?

I believe that delving into these questions could provide valuable insights and generate constructive discussions within the Islamic finance community in Nigeria. By shedding light on General Babangida’s dual involvement and the potential implications, we can further enhance our understanding of the challenges and opportunities faced by the Islamic economy in our country.

Thank you for considering my questions, and I look forward to reading more about this topic in your esteemed Focus on Islamic Economy.



Abba Musa Mamman Lagos


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10 Megatrends Shaping the World in 2024




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The report, “Navigating Megatrends Shaping Our Future in 2024”, was launched during the first day of the World Governments Summit (WGS) 2024, being held under the theme “Shaping Future Governments” from 12th-14th February in Dubai. The report examines the indicators that shape these megatrends, supported by evidence from today as well as future expectations. These trends inform decision-makers and foresight experts about various sectors and the potential opportunities in each.

Khalfan Belhoul, CEO of Dubai Future Foundation, said, “This report has been launched in line with DFF’s efforts to identify and communicate those trends with the most potential to shape opportunities and strengthen local and international partnerships to overcome current and future challenges.”

“The challenges that face us on our journey to the future require that we are agile enough to be able to adapt to rapid change. It is vital we pay attention to the signals we detect – only then can we be prepared to overcome challenges and seize opportunities. The World Governments Summit provides a platform for discussing these challenges and exploring the opportunities.”

Materials revolution

New types of materials will create a shift in the industry, with solutions based on artificial intelligence (AI) such as biopolymers, biorefineries, and chemical recycling paving the way. These solutions will facilitate the development of new biological and novel materials that could rival plastics.

Boundless Multidimensional Data

Enabled by developments such as 5G and 6G in addition to advanced connectivity, the availability of raw data will vastly increase. The Internet of Things (IoT) will continue being deployed in healthcare, agriculture, and smart cities, especially in the Middle East.

Technological Vulnerabilities

The cybersecurity sector will boom amid a sharp rise in smart home devices and wearable tech. According to a report by Allianz, the annual cost of ransomware is projected to reach around $265 billion by 2031. Meanwhile, the debate on the future of decentralised finance will continue.

Energy Boundaries

Advances in tech and the growing demand for energy will drive the pursuit of alternative sources of energy. Novel materials and machine intelligence will enhance current sources of energy, including their distribution around the world – and in space.

Saving Ecosystems

Approaches to conservation will be more interdisciplinary and future-focused, taking into account both societal and environmental factors. Driven by resource scarcity, climate change, and shifts in social values, environmental impact management will become increasingly holistic.

Borderless World – Fluid Economies

The world is witnessing a rise in unmediated transactions in finance, health, education, trade, services, and even space, which are blurring boundaries and creating more cross-border communities. Advances in communications, computing, and advanced machine intelligence will accelerate the creation of a borderless world that will change the way we work, live, and connect.

Digital Realities

The spread of 5G and 6G networks will enhance the applications of autonomous technologies and IoT. As quantum technologies become scalable and reliable, immersive experiences will become even more realistic.

Living with Autonomous Robots and Automation

Robotics and automation will increasingly be deployed across industries beyond automotive, manufacturing and supply chain logistics. This will provide opportunities for efficiency and innovation, although there will also be ethical challenges to address.

Future Humanity

New workplace norms will emerge, with people needing to adapt to non-traditional skill sets in areas such as digital literacy, communications, culture and sustainability.

Advanced Health and Nutrition

Accelerated progress in advanced machine intelligence, nano- and biotechnology, additive manufacturing, and IoT will transform health and nutrition, improving health and wellbeing for people of all ages. Technology will reduce, if not eradicate, some communicable and non-communicable diseases and enhance the sustainable use of and access to water and food.

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Africa’s New Online Foreign Exchange System will Enable Cross-border Payments in Local Currencies – what you need to know




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The high cost of making cross border payments on the African continent has driven governments on the continent to seek options of settling trade and other transactions in local currencies. This has given birth to the Pan-African Payment and Settlement System which was formally launched in Accra, Ghana, in January 2022.  Development economist Christopher Adam, who has studied the exchange rate policies of African countries, answers some key questions.

Why are African countries exposed in the international currency market?

Three main reasons. First, African economies are small and as such are highly dependent on trade with the rest of the world. Their exports are dominated by primary commodities including oil and gas, minerals and cash crop agriculture. On the import side, they purchase a whole range of goods – from essential commodities not produced at home such as fooddrugs and medicines, to capital goods and energy. A large proportion of these are sourced from China and other major economies of the global north. But because African countries are small relative to their trading partners they rarely have the power to determine the prices of imports and exports. They are “price takers” in world markets. And with world prices being set in the major reserve currencies of the world (the US dollar, euro, yen and renminbi), African countries are exposed to movements in these world prices. Second, “intra-African” trade is still a relatively small proportion of the total trade of African countries.

Finally, since African countries’ currencies mostly can’t be directly exchanged in international transactions, the dollar remains the most widely used currency in trade, even between African countries.

What’s required for the system to get off the ground?

The basic idea of the system is to be able to settle trade between African countries without having to use the US dollar.  There are two major challenges with that. First, intra-African trade accounts for less than 15% of Africa’s exports at present (although supporters of the African Continental Free Trade Area expect this to grow significantly over the coming decades). The African payment system therefore does not eliminate the role of the dollar (or other foreign currencies) in trade settlement entirely.

The second issue is that trade is not balanced between African countries. For example, Kenya exports goods of higher total value to Ethiopia than it imports from Ethiopia. If Ethiopia paid in its own currency, Kenya would end up with Ethiopian currency that it didn’t need. Some form of settlement currency that is acceptable to all is required – most likely the US dollar.

What are the challenges and potential risks?

Since trade rarely occurs instantaneously, some institution in the trade financing chain carries the exchange rate risk. Because of the gap between placing an order for imports and receiving them to sell in the local economy, there is a risk that the value of local currency will change relative to the currency in which the import is denominated.

In the “old” system, this risk is borne by the trader because everything is priced in dollars. The local currency value of the income from exports or the local currency cost of imports will change with movements between the local currency and the dollar, but the banks and those counterparts pricing in the dollar are protected.

Under the new system the same allocation of risk will remain in “external trade”. This currency risk is also present for intra-African trade.

An important question for the new African payment system is: who bears the exchange risk if one African currency depreciates relative to another? Should the importer carry the risk, or the exporter? Can and should the African payment system bear this risk of exchange rate movements itself? Where both currencies are volatile, traders might still prefer the relative stability of settlement through the US dollar.

The success of this system also depends on scale. The more trade settlement is routed through it, the easier it will be to settle in local currencies. Large currency imbalances will be less common. But until the system achieves this scale, the African payment system will need a strong balance sheet so that traders and participants can have confidence that settlement will be swift and risk free. It is unclear at the moment how this is to be achieved.

What is the best case scenario?

If the system can address the trade imbalance problem, provide clarity on risk management and reach scale, it could be very successful. But this is all going to be driven by underlying economic performance. Improved settlement will help but what is really driving this is the structure of trade. The more the economies of Africa can develop intra-African trade and the less dependent they are on extra-African trade, the less will be dollar dependence in trade. This growth in trade depends to some degree on trade settlement and trade financing but much more on production, consumption, trade policy and fiscal policy.

Christopher Adam is a Professor of Development Economics, University of Oxford

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