Special Economic Zones (SEZ), are designated areas within a country that offer favorable conditions for business and trade. They typically feature streamlined regulations, tax incentives, and improved infrastructure, all designed to attract domestic and foreign investment.
Joint SEZs take this concept a step further by involving the collaboration of two or more countries in creating a shared economic zone. Joint SEZs herald cross-border economic integration, and an influx of foreign investors drawn to both countries.
If they succeed.
Joint SEZs rarely exist because of how difficult it is to run them. Below are two examples, one success story, and one tragedy.
Kaesong Industrial Complex (North & South Korea)
Established in 2004, the Kaesong project aimed to combine South Korean capital and technology with North Korean labor. South Korea would have access to Korean-speaking cheap labour, while North Korea would have an important injection of foreign currency.
However, its operations were marred by political tensions and military incidents. In 2013, North Korea barred South Korean access to the region amidst escalating tensions and withdrew all of its employees between April and September. The facility was temporarily closed in 2016, following North Korean hydrogen bomb testing and a satellite launch. In 2020, North Korea blew up the Inter-Korean Liaison Office in the area. The Kaesong project underscores the complexities of cross-border initiatives in conflict-prone regions, and remains a reminder of the potential and challenges of such collaborative ventures.
Thilawa Special Economic Zone (Myanmar & Japan)
The Thilawa Special Economic Zone (SEZ) in Myanmar is a significant and successful joint venture project between the governments of Myanmar and Japan in 2015. The SEZ is developed by a Myanmar-Japan joint venture company, where stakes are held by multiple parties: Myanmar government (10%), Japanese government (10%), Myanmar private consortium (41%), and Japanese private consortium (29%). The SEZ has attracted over US$2b as of Dec 2021, and offers prime access to the Burmese market, alongside other typical benefits such as tax relief.
Despite their potential benefits, joint SEZs can face unique challenges, including political differences, regulatory issues, and complex governance structures. Successful cooperation often relies on strong diplomatic relations and a shared commitment to economic development. On this point, Singapore and Malaysia have a good foundation to build on.
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