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Study on Industrial Parks Development: Issues, World Experiences and

Lesson to Ethiopia

Presentation · December 2017

DOI: 10.13140/RG.2.2.25254.63045

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Alebel B. Weldesilassie Mulu Gebreeyesus

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 Study on Industrial Parks Development

Issues, World Experiences and Lesson to

Ethiopia

Alebel Bayrau Weldesilassie (PhD)

Ethiopian Development Research Institute

16th Executive Idea Exchange Forum (EIEF)

“The Prospects and Challenges of Industrial Parks Establishment for Ethiopia’s
Economic Development” organized by Addis Ababa University & UNDP
Place: Addis Ababa University
21 December 2017
 Outline
1. Key messages
2. IPD: Why in Ethiopia?
3. IPD: benefits, state of the debate & Challenge
4. Countries’ Experience in IPD: SEZs of China
5. Lesson to Ethiopia
6. Outstanding issues in IPD in Ethiopia
 Key Messages
• IPD is a policy instrument for structural transformation:
Industrialization and Urbanization

• Countries’ experiences show both failure and success

stories in realizing the benefits of IPD

• IPD requires setting realistic development goals and

designing feasible implementation mechanism to realize
the goals and maximize its benefits

• Development – oriented approach, the dynamic nature of

country specific features and international opportunities
are essential for the success of IPD in Ethiopia
IPD: Why in Ethiopia?
 IPD: Why in Ethiopia?
 Ethiopia Achieved remarkable economic growth (11% per year) in the last 12 years

12.6
11.7 11.5 11.8 11.2 11.4
10.6 10.5
9.9 9.8 10.3 10.3
8.7
7.4
6.2 6 5.9
5.2 5

1.5

-1.4
(2.1)
 IPD: Why in Ethiopia?
Limited economic transformation: Sectoral share (value add)
Trends in Sectoral share of GDP (1990 - 2015)

60
50
40
30
20
10
0
1990-95 1995-00 2000-05 2005-10 2010 - 15
Agriculture Industry Services

o Agriculture: 41%
Value Addition o Service: 45%
Structural o Industry: 14%; Manufacturing: 5%
Transformation
Employment o Non-Agriculture Employment: 24.5%
 IPD: Why in Ethiopia?
 Binding constraints for
Industrialization
• lack of capital
• Shortage of foreign exchange
• Low production capacity
• Poor management knowledge
• Inefficient institutional
service
• Absence of coordinated effort
 Binding constraints for
Manufacturing sector
• Land acquisition
• Poor custom & logistic
services
• Low capacity utilization
• Poor/lack infrastructure and
public services
• Shortage and poor quality of
raw materials

 Ethiopia has taken important measures to use Industrial Park

Development as a policy instrument to address these constraints
& enhances economic transformation
IPD: benefits, state of debate
and challenges
 IPD: benefit
 Industrial Parks are generally policy instruments to enhance
economic transformation and speed up the catch up process.
 Enhance Industrialization
 Enhance Urbanization
 Short term economic benefits:
 Attracting investment
 Improve export
 Employment creation
Long term economic benefits
 Promote upgrading: promotion of nontraditional economic activities,
 Promoting technological learning: hard and soft technology transfers,
 Promote Innovation: encouragement of domestic entrepreneurialism
 Promotion of economic openness
 State of the Debate:
mixed outcome from IPD

 Experiences in other countries where IPD is used as a policy

tool for industrialization revealed both success and failure
stories:
 investment, export, employment, diversification & spill-over
– Asia: China, Bangladesh and Vietnam
– Africa: Nigeria, Mauritius, Ghana, Tanzania, Kenya

(1) To what extent have IPD played a role in supporting industrialization in the host
country?
(2) To what extent have IPD contributed to knowledge and technology spillovers to
the host country?
 State of the Debate

IPs Consensus
- provides limited IPs have the potential to
econ. benefit act as catalytic exclaves
that announce and IPs as catalytic
- welfare-reducing exclaves that
enclaves that prepare for liberalization:
- under certain announce and
constrict prepare for
countrywide circumstances and
- provided certain liberalization
liberalization
prerequisites have
been addressed

 Big question: How do countries realise/ why they fail to realise

the benefits of Industrial Park Development (IPD)?

 Requires understanding how countries “set realistic goals and

design feasible pathways” to effectively achieve its goals.
China’s Experience in IPD:
Features of
Special Economic Zones (SEZs)
 Concept of SEZs

• Designed to implement a ‘gradualist’ approach for ‘opening up’

policy and transformation process
• Four assumptions
• overcome the common problem of limited resources by
supporting large-scale investment;
• foster incremental experimentation
• attract FDI to promote export growth and generate
employment; and
• facilitate economic liberalization
Locations for First generation SEZs

 priority was given to

regions with special
comparative
advantages (proximity
to Hong Kong and
Macao)
 Minimum risk of
failure to avoid the
transmission of any
failure to the country
as a whole
 Functions of SEZs

• SEZs had a function of ‘window’ and radiator’

– As ‘window’ function, they serve as a first step for
foreign enterprises to enter the Chinese market in a
more guaranteed investment atmosphere and could
also collect information through this inside looking
window.
– As a ‘radiator’, the SEZs served a function of
creating linkages between firms in the SEZs and
those in the rest of the country.
 Stages of Development
Stage of Period Functions/Objectives
development
Exploration/e 1980 to Facilitate broad based, comprehensive development through
xperimental 1990  attracting foreign direct investment (FDI),
stage  expand China’s exports
 accelerate the infusion of new technology
 creating forward linkages with the world; and
 backward linkages with different parts of China
Expansion 1990 to The aim was to expand the development of SEZ to other
stage 2010 types of special zones:
- Hi – Tech Industrial development zones,
- New Areas: deepen experiment; create platform for the
outside world & drive new growth pole
- Customs Special Supervision Zones.
Reform Stage Since - to experiment with free trade before China’s accession to
2010 the World Trade Organization (WTO)
- Main functions were export processing, foreign trade,
 Generations of SEZs
Generation Development objectives
First generation - Boost employment
- Promote technological advancement
- Develop labor-intensive industries
Second generation - Develop capital- and technology-intensive industries
- Add more functions such as testing, R&D and design
Third generation Focus on technology-intensive industries
- Attract in the operational headquarters of multinational
cooperation
- Facilitate the development of local small and medium
enterprises
Fourth generation - Implement an innovation development strategy
- Develop knowledge-intensive industries
 Institutional arrangement of SEZs
• The law governing the SEZs consists of two systems:
– The first system encompasses the general national laws and regulations in
the areas of contract, investment, foreign exchange control, tax and labor.
– The second system is made of the regulations specifically applicable to each
SEZs
• The law contains:
– outlines of the basic preferential tax treatment effective in the SEZs; and
– Prescribe the role of regional governments in the administration of the
SEZs.
• regional governments are vested with discretion to regulate the SEZs
mainly in the area of local taxes
 Administrative system SEZs
•SEZs are empowered with economic management
rights and compatible administrative rights:
–Most SEZ Administrations enjoy high administrative rank;

–Running with high efficiency, providing “One Stop ”service to

investors, and

–Responsible for creating a good investment environment

 Economic contribution of SEZ in china

Trends in population and employment in SEZs

45,000

40,000

35,000

30,000

25,000
Employment ('000)
20,000 Population ('000)
15,000

10,000

5,000

0
1980 1985 1990 1995 2000 2006
 High rate of urbanization: Shenzhen
333,000 residents in 1980 15 million people in 2014
 Economic contribution of SEZ in china
Trends in Utilized FDI and Exports in (Mil. of USD) in
SEZs
200000
180000
160000
140000
Mil of USD

120000
100000 Exports (M. USD)
80000
FDI (M. USD)
60000
40000
20000
0
1980 1985 1990 1995 2000 2006
 Economic contribution of SEZ in china
Trends in Real GDP in SEZs (Bi of RMB)
1000
900
800
700
600
500
Real GDP (Bi.RMB)
400
300
200
100
0
1980 1985 1990 1995 2000 2006
 Success factors
 Strong commitment to reform and pragmatism from top
leadership
 Strong support and proactive participation of governments
 Preferential policies and institutional autonomy
 Foreign Direct Investment and the Chinese diaspora
 Clear objectives: Technology learning, innovation,
upgrading, and strong links with the domestic economy.
 benchmarks and intense competition.
 Location advantages.
 Negative experience
 Disparities in income among regions due to selection
of SEZs location;
 China was the recipient of outdated and backward
technology;
 The inexperience of the Chinese negotiators exposed
china to be exploited by the Multinational
companies;
 The homogeneity problem:
• Many of the SEZs or industrial parks now competing in the same or
similar sectors lack conspicuous sector or product differentiation.
 Environmental issues were not considered in SEZs
development
Lesson to Ethiopia
 Basis of IPD in Ethiopia
1. Development problem Poverty, low income country,
low productive capacity; institutional inefficiency
(market failure, government failure)
2. Development Goal  Eradicate poverty
 Economic growth
 Economic transformation
3. Development strategy ADLI: ARDS, IDS, Capacity Building Strategy
4. Governance system Federal system: power decentralized at federal, region
and zone/wereda
5. Comparative  Cheap & abundant labour;
advantages  Lower energy price
 Growing Domestic market
 Geographical location
 Rich raw material resources
 Easily trainable skilled manpower
6. Institution  Industrial Policy,
&  Proclamation No. 886/2015;
Organization  PMO, EIC, IPDC & others
Lesson – 1: Clear concept of IPD
A. IPD is part of the overall development
strategy of the country, rather than as stand-alone
strategy’.
– Problem – and Development - oriented strategy
• The opening up reform policy, and thus, development of
SEZs, was governed based on ‘a problem-oriented policy,
rather than an ideological-based policy;
 Lesson – 1: Clear concept …
Speed up the catch up and sustain economic
development through:
- Short term:
- Export growth: Mobilize foreign capital;
B Contributio Increase export earning, etc
n of IPD in - Employment
the overall - Improve institutional efficiency: improving
objective of coordinated effort in infrastructure dev.; service
industrializ delivery & avoid rent seeking behaviour
ation - Long run:
- Improve productive capability & build
knowledge economy:
- Human capital development; Technology
learning, Upgrading & innovation
 Lesson – 1: Clear concept …
C IPD as a learning  Avoid cost due to lack of inexperience:
tool:  IPD is a phase approach: Start with first
IPD requires generation
huge investment  Deferred regional IPD
and is a learning  Use IPD as experiment for reform:
process  Opening of the logistic, financial, etc.
D Consensus Concept of IDP
and commitment Contribution & benefit
among key Implementation:
stakeholders Recognize and design special institutional
(Political & organizational arrangement
leaders, gov.
officials, private
sectors, etc)
 Lesson – 2: Develop the ‘right’ Institutional
arrangement
• The nature of Industrial Parks:
– Should be in line with the expected benefit/contribution
– Exploit current country’s Comparative advantage (huge domestic economy)
– International opportunities: Advanced technology in ICT;
– Green development strategy (Eco – Industrial Park)
– Laboratory: Utilize IPD as an instrument of experimentation
• Park Selection criteria
• Ensure IPs Are not ‘enclaves’: Linkages between park enterprises and the
domestic economy
• Reliable sources of strategic resources of park
• Envisaged the various stages of IPs: aiming for competitive advantage as
comparative advantage is time bounded,
 Legal framework:
 Need to be clear and unambiguous to avoid risk & rent seeking
 It may differ from other regulations used outside the Park
 Prepare Park Normative document
 Lesson 3: Clear & appropriate governance system

 Organizational arrangement: administrative system

according to the principle of government led and market
operating
• Effective administrative system & institutional capacity at
regulatory, implementing and park levels
• Clear roles, responsibilities and accountability
• Motivated and skilled manpower at regulatory body
• Effective and efficient park service delivery
• Due consideration to internal political economy features
Outstanding issues
 Outstanding issues
 Key outstanding issues that requires due consideration to
avoid distortion/minimize negative effect:
1. Falling in trap due to thirst for development
– Overestimation of the benefit of FDI
– Low land/shed price
– Sacrificing the environment
– Heavy debt to develop IPD
2. Issues related to proclamation:
– Rights in foreign exchange
– land rights for Foreign developers/operators & Park enterprise
– Conflict of interest between region & federal
– Industrial relationship
3. Build institutional capacity at country level that provide
technical advise, monitor & evaluate contribution of IPD
 Thank you!

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