In the service of free trade
For decades, governments have used ‘free zones’ to encourage foreign direct investment and spur export activity. Today, the World Free Zones Organization (WFZO) estimates that there are more than 2,200 SEZs globally in 2017 – up 25% since 2010 – employing more than 100m people.
When designed well, these areas provide ‘plug-and-play’ office and warehouse facilities, labour access, as well as preferential regulatory conditions, including bonded, duty-free storage and income tax breaks.
Many of the most successful examples, such as our Jebel Ali Port in Dubai, are also integrated into logistics networks and industrial clusters. Such Special Economic Zones (SEZs), as they are also called, have grown dramatically in the past 30 years, notably in emerging economies with otherwise protective import and trade regimes.
For the automotive industry, where slow-moving bureaucracy can put a hard brake on just-in-time flows, SEZs have been attractive for setting up distribution and modification centres for vehicles and spare parts, helping to reduce inventory and trade costs.
Today, changing technology, regulations and markets look set to transform the value and relevance of such SEZs again. In emerging markets, including those in many parts of Africa, it’s increasingly important that such zones are part of wider international economic strategies that can tap into local skills, services and logistics. For industries like automotive, it rarely makes sense to develop supply chains in isolation.
SEZs are also enjoying new opportunities, as advanced economies in North America and Europe show more interest in developing such areas, both to deal with trade rules, as well as to connect new, high-tech value chains.
For automotive, this could include the growing complexity around electric vehicle and battery production. Whilst SEZs have long been centres of logistics and light assembly, there is also more potential to exploit their benefits for vehicle production, whether for new vehicle technology, or in establishing new manufacturing centres in expanding markets such as in the Middle East and Africa.
Free trade zones offer many tax and logistics benefits to the automotive supply chain. With our flagship facility in Dubai serving more than 7,500 companies, we are developing this model in markets across the world.
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