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Global foreign direct investment (FDI) in special economic zones (SEZs) surged in 2023 on the back of restrictive trade policies and supply chain disruptions, according to a recent FDI Intelligence report. Some 5% of all global FDI projects were funneled into freezones last year — up from 3.7% in 2022 — with MENA accounting for over half of the total FDI investments in SZEs globally, according to the report.
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Why SEZs? SEZs are designated areas offering specific advantages for businesses, offering a variety of advantages that may differ in governance, types and scope of incentives, targeted industries, and available services. The varying scope of SEZs complicates efforts to accurately assess the level of business activity within these zones. “It’s difficult to track them and to know which zones have actually entered operations and are successful,” OECD policy analyst Maria Camila Moreno told FDI Intelligence. Adrianople Group estimates that there are some 4.9k active special economic zones in over 90 countries worldwide, while the WFZO calculates some 7k, the report notes.
Special economic zones offer “predictability in terms of a stable business environment,” mitigating supply chain fluctuations, SZE-focused consultancy firm NxtZones CEO Douglas van den Berghe told the firm. Investing in SEZ or FTZs “somewhat insulates companies from new customs, tariffs or [policy changes] that might come up,” real estate advisor CBRE Americas senior managing director Seth Martindale told FDI Intelligence.
Around 85% of 516 global enterprise leaders predict that an increase in geopolitical tension will influence investment choices, a Kearney study found at the start of this year. Concerns are rising about the impact that growing geopolitical tensions in Asia and conflicts in the Middle East and Europe will have on global supply chains.
On the rise…: The number of corporate filings and event transcripts discussing either “freezones” or related terms, including “freetrade zones” or “special economic zones,” reached an all-time high in 3Q 2023, the report says, citing data from AlphaSense.
… and growing: “Freezones will be very important in the next 10 years,” World Freezones Organization (WFZO) board adviser Martin Ibarra told FDI Intelligence. “There is a reconfiguration of global chains to regional chains. Freezones give the perfect environment of ready infrastructure, buildings and duties exemptions [for investing companies adjusting their global footprints].”
MENA saw FDI flows go into 506 of its SZEs in 2023, attracting more FDI projects than any other region and accounting for over half of the total FDI investments in SZEs globally, according to the report. 1H saw growth across the region, with investments in Oman’s special economic zones, freezones, and industrial cities rising by 20% y-o-y to OMR 20.1 bn in the first half of this year. The Dubai Integrated Economic Zones Authority (DIEZ) also recorded a 18% y-o-y boost in net income and a 12% increase in revenues in 1H 2024.
Lots to come from Egypt: Egypt’s cabinet revealed big plans for the country’s ports back in July — looking to set up 31 new dry ports and logistics zones during the coming three years. Egypt’s General Authority for Investment and Freezones (GAFI) announced plans this month to set up four new freezones and have two others go live next year. The new zones will be located in Greater Cairo and New Alamein and will cover various sectors. The in-the-works zones are in addition to the six areas already listed in GAFI’s plan for next year. Industrial land developer Polaris Parks also committed EGP 10.5 bn (c. USD 217 mn) last month to develop two major industrial parks in Egypt’s New Administrative Capital and New October City.
And Saudi Arabia: The Saudi Port Authority (Mawani) and Al Jeri Logistics Services inked two contracts worth SAR 160 mn in August to develop two logistics zones for storing and handling containers at Jeddah Islamic Port and King AbdulAziz Port in Dammam. The kingdom launched four new SEZs in April last year — Riyadh, Jazan, Ras al Khair, and King Abdullah Economic City — to reinforce its position as a global investment hub.
Governments are eyeing SEZs to boost their regional foothold: King Salman International Airport Development Company (KSIADC) inked an MoU this month with Chinese firm Ewpartners to explore the development of an e-commerce and logistics special economic zone within King Salman International Airport. The UAE-India CEPA Council inked two agreements with the Ras Al Khaimah Economic Zones Authority and the Abu Dhabi Chamber of Commerce and Industry last month to expand connectivity and cooperation between business communities in the two countries.
Renewables are a big boost: Renewable energy investments in SEZs amounted to some USD 18.6 bn in 2023, making it the largest recipient sector globally. However, this marked a decline from the record USD 61.6 bn in renewable energy FDI commitments recorded in freezones in 2022, largely due to fewer large, speculative agreements being signed for green hydrogen production in FTZs.
