Special Economic Zones to Facilitate Trade and Investment Opportunities: MENA Regional Applications amidst A Global Race to the Bottom
| Author | Nasher Alreshaid |
| Position | Kuwait University Law School |
| Pages | 43-97 |
e Indonesian Journal of International & Comparative Law
ISSN: 2338-7602; E-ISSN: 2338-770X
http://www.ijil.org
© 2021 e Institute for Migrant Rights Press
spECial EConomiC ZonEs to faCilitatE
tradE and invEstmEnt opportunitiEs
menA regionAL AppLiCAtionS AmidSt A gLobAL rACe to
the bottom
Nasser Alreshaid
Kuwait University Law School
E-mail: nasser.alreshaid@ku.edu.kw
States around the world have evolved with the evolution of global markets opening
their doors so as to consider such sovereign entities as competitors, to say the very least.
Sharply mobile private capital entails that such capital shops in thy neighbor’s market
instead when oered the right incentives. Special Economic Zones (SEZs) have been
developed around the world as a government tool to attract private capital and achieve
an array of benets from job creation to value-added to the state’s economy. In exchange
for such delicate capital, countries oer packages of scal incentives to foreign investors
like tax breaks. And consequently, as such, not only do states compete against each other,
but so do entire regions, to attract an inow of private capital. e situation could gently
be described as a race to the bottom by providing the utmost incentives with the least de-
mands from foreign investors. Labor and environmental standards may be overseen and
justied by cheap labor that a state’s SEZ may oer. And with the resources required of a
country to set up such SEZs and market them to facilitate trade and investment, what is
to guarantee these zones are actually feasible anyway. is study looks into the core com-
ponents of SEZs in terms of their main elements and challenges they confront. A look at
what institutional frameworks are required to bring SEZs to success is a major discus-
sion and brings in law and development approaches to dierent schemes. Deliberating
SEZs concludes by displaying regional examples of SEZs in the Middle East and North
Africa (MENA) region in places like Dubai, Kuwait, and Saudi Arabia’s extravagant
new megacity NEOM, where outcries for economic diversication away from oil reve-
nues are at the forefront. SEZs have been brought up by these regional state governments
as a means of experimenting to achieve sustainable economies. is meant that some
of these SEZs have adopted completely foreign ideas such as applying common law to
replace their long history of civil law systems inuenced by Islamic legal principles, qh.
Keywords: SEZs, Regional Trade, Economic Development, Regionalism, Cross-border Gov-
ernance.
IX Indonesian Journal of International & Comparative Law 43-97 (Januar y 2022)
44
Alreshaid
INTRODUCTION
One may wonder, with so many cities around the world competing for
capital in light of nite public resources, what is to distinguish such
cities from one another? Special economic zones (SEZs) have been one
phenomenon that attempts to address these scarcity and competition
dynamics and have been dened as, “geographically delimited areas
within which governments facilitate industrial activity through scal
and regulatory incentives and infrastructure support.”1 rough SEZs,
governments may oer tax incentives, amongst other benets, in
exchange for attracting foreign investors to contribute to the zone’s, and
ultimately country’s economic development. is economic activity
can help create jobs, business opportunities, and eventually within
time, government revenue.
is paper attempts to assess how these zones around the world have
been set up and whether they have achieved their intended objectives.
is is assessed against the opportunity cost of what the country could
have otherwise done with all the resources committed to establishing
these zones. An example of three of such zones may be provided,
Dubai’s International Financial Center, and both anticipated Kuwait’s
promised Economic Zones (Silk Island) and Saudi Arabia’s NEOM
City. Particular attention would be to whether public nance has or can
actually be relieved to make these zones successful and self-sucient,
premised on trade and investment inows. is paper ultimately
stresses that SEZs are to be assessed carefully, as results around the
world are mixed. ey should be viewed as a supplementary tool for
the government. Such governments should only proceed should the
returns on all public nance costs genuinely contribute to the broader
economy of the country.
ere are some 5400 SEZs around the world today with variant
levels of success.2 Figure 1 depicts the historical gradual increase in
SEZ presence worldwide. e main challenge is that creating SEZs
entails signicant upfront government investments in hard and so
1. World Investment Report: Chapter IV: Special Economic Zones at 128
(UNCTAD Publication, Geneva, 2019) [hereinaer “World Investment Report
2019”].
2. Id.
45
Special Economic Zone to Facuilitate Trade and Investment Treaties
Alreshaid
infrastructure. ere must be a level of key infrastructure in place
such as roads and IT services to lure inows of private capital. In
addition, the government must provide so infrastructure in terms of
a solid regulatory and institutional framework so that the objectives
the zones have been established for are maintained. e diculty is
knowing how narrow or broad these objectives can be and whether
that may impact the role of foreign investors taking social services
into consideration, like creating enough jobs with certain minimum
wages. e proliferation of SEZs globally raises the competition bar
thus meaning a government must make them even more attractive,
which, practically speaking, may be dicult to attain while achieving
feasibility at the same time. It thus becomes a global race to the bottom.
Figure 1: Proliferation of SEZs globally over time
79 176
500
845
3000
3500
4300
5400
0
1000
2000
3000
4000
5000
6000
1970 1980 1990 2000 2010 2020 2030
Number of SEZs
Year
Source: UNCTAD, 2019
e problem with SEZs, therefore, is assessing whether they
actually alleviate public nance from the need for large government
contributions to such zones to create economic activity within the
country. e results suggest that SEZs are much more complex than
one may imagine when it comes to them being a public policy choice.
Empirical research has suggested that SEZ models have, to the contrary,
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