LEVERAGING A NEW GENERATION OF INDUSTRIAL PARKS AND ZONES FOR INCLUSIVE AND SUSTAINABLE DEVELOPMENT - STRATEGIC FRAMEWORK
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Funded by the
People’s Republic of China
LEVERAGING A NEW GENERATION
OF INDUSTRIAL PARKS AND
ZONES FOR INCLUSIVE AND
SUSTAINABLE DEVELOPMENT
STRATEGIC FRAMEWORK
Leveraging a New Generation
of Industrial Parks and Zones
for Inclusive and Sustainable
Development
STRATEGIC FRAMEWORKCopyright © 2018 United Nations Industrial Development Organization The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries. Designations such as “developed,” “industrialized” and “developing” are intended for statistical convenience and do not necessarily express a judgment about the state reached by a particular country or area in the develop- ment process. The mention of firm names or commercial products does not imply endorsement by UNIDO. Material in this publication may be freely quoted or reprinted, but acknowledgement is requested, together with a copy of the publication containing the quotation or reprint. For reference and citation, please use: United Nations Industrial Development Organization, 2018. Strategic Framework for Leveraging a New Generation of Industrial Parks and Zones for Inclusive and Sustainable Development. Vienna.
Contents
Page
vii Preface
ix Acknowledgements
xi Abbreviations
1 Chapter 1 What are industrial parks and zones?
3 Special economic zones
4 Beyond standard models
9 Chapter 2 Traditional parks and zones
9 Driving economic reform: early reform zones
10 Export processing zones
14 Free zones
15 Why parks and zones can fail to meet desirable objectives
17 Chapter 3 A new generation of parks and zones
18 Science and technology parks
19 Research parks
19 Technology parks
21 Innovation areas
22 Eco-industrial parks
26 Smart parks and cities
27 Clusters and industrial parks and zones
29 Smart regions
30 How to leverage parks and clusters to foster industrial diversification
33 Chapter 4 Preparatory analysis and design for 21st century parks
and zones
33 Diagnostics: Do they fit with broader national and regional development strategies?
38 Laws, regulations, policy design and planning
40 Dealing with big issues
41 Environmental, economic and social aspects
49 Chapter 5 Formulating and implementing a master plan
49 Assessing feasibility
49 Developing a master plan
51 Implementing and financing
52 Operating and adapting
55 Promotion and marketing
ivPage
56 Monitoring and evaluation
57 Key performance indicators
59 General recommendations
CONTENTS
63 Notes
65 References
Boxes
1 1.1 Agricultural growth poles driving economic development in Africa
4 1.2 Special economic zones in China
6 1.3 Industrial parks in Ethiopia boost industrialization by focusing on light industry and
leveraging partnerships
9 2.1 Chinese-led public–private partnership
10 2.2 Export processing zones (EPZ)
11 2.3 Kaohsiung EPZ, Taiwan Province
15 2.4 Shannon Free Zone
15 2.5 Free zones in the European Union
16 2.6 Jebel Ali Free Zone, Dubai
17 3.1 Jinqiao Economic and Technological Development Zone
19 3.2 Shannon Development and the National Technology Park Limerick, Ireland
20 3.3 Suzhou Industrial Park for high-tech innovation and entrepreneurship
21 3.4 Technology Park Ljubljana
23 3.5 The Hawassa Industrial Park in Ethiopia
24 3.6 Kalundborg, Denmark
25 3.7 China’s approach to eco-industrial park development
26 3.8 Examples of the role of environmental management services
27 3.9 Smart city in Songdo International Business District
28 3.10 Malaysia’s digital free trade zone
29 3.11 Zhangjiang Hi-Tech Park’s cluster development strategy
42 4.1 Land use planning and zoning in France
51 5.1 Best practices in zone services
Checklists
34 4.1 Evaluation of the political, macroeconomic and business environment
37 4.2 Identifying and consulting the stakeholders
37 4.3 Governance of public–private partnerships
38 4.4 Governance frameworks
39 4.5 Legal frameworks
40 4.6 Incentive frameworks
41 4.7 Land, material resources, infrastructure, utilities, services
42 4.8 Defining the number, types and location of zones, and potential markets
vPage
44 4.9 Environmental aspects
46 4.10 Business environment conditions and incentives
46 4.11 Social aspects
47 4.12 Labour rights
CONTENTS
53 5.1 Management body structure
53 5.2 Vision, mission and organization of the governing/management body
54 5.3 Supervisory body
57 5.4 Evaluating spillovers
Figures
20 3.1 Technology park: the comprehensive innovation ecosystem
30 3.2 Smart region’s innovation system structure
31 3.3 Networks of industrial parks and clusters in Slovakia
50 5.1 Pre-investment, investment and operating phases of the project cycle
Tables
7 1.1 Frequent operational issues and possible solutions where markets are still not fully developed
8 1.2 Examples of specific zones
34 4.1 Steps for establishing a park or zone
39 4.2 Topics a comprehensive SEZ law should deal with
59 5.1 General recommendations
viPreface
UNIDO was among the first development agen- Parks and zones can be adapted to different eco-
cies to define guidelines for the establishment of nomic and political settings—from less developed coun-
industrial parks in the 1990s.1 In the 2000s, several tries, to transition economies, to resource-based econo-
UNIDO publications addressed the issue of indus- mies and to middle income countries. The challenge for
trial parks such as UNIDO Industrial Development governments is to ensure they are used most effectively
Report 2002/2003: Competing through Innovation and efficiently within a given country context. The stra-
and Learning and Industrial Development Report tegic framework is a road map in that direction:
2009: Breaking In and Moving Up: New Industrial • It provides a brief overview of concepts of indus-
Challenges for the Bottom Billion and the Middle- trial parks, zones and other territorial units, their
Income Countries. A series of regional conferences roles and expectations as spatial development
on industrial parks were held from 2010 to 2015 in policy instruments, highlighting their evolution
Azerbaijan, Slovenia and Belarus and led to related over time and links with growth pole theory and
publications. These conferences facilitated network- regional development approaches.
ing, knowledge and experience-sharing among policy- • It underlines the importance of parks and zones
makers, practitioners and academics to better under- in facilitating linking SMEs and their clusters to
stand the role of a new generation of industrial parks regional and global value chains.
and special economic zones and to build the capacity • It clarifies the roles of various stakeholders, such as
of public and private stakeholders to design, establish policymakers, regulators, zone and park authorities
and manage industrial parks. and management bodies, as well as investors, enter-
This strategic framework was prepared in the con- prises, employees and representatives of civil society in
text of the UNIDO Project: Fostering inclusive and designing and implementing park and zone projects.
sustainable industrial development (ISID) in the New • It presents good practices and successful experi-
Silk Road Economic Belt, later referred to as the Belt ences in establishing and managing industrial
and Road Initiative: Leveraging the potential of indus- parks in line with ISID.
trial parks, zones and cities in Azerbaijan, Tajikistan, • It explains the principal phases of planning,
Turkmenistan and Uzbekistan. It is designed to assist designing and implementing a park or zone pro-
national and international stakeholders in using ject: preparatory analysis; diagnostics; policy
various forms of industrial parks and zones as spa- design and planning; implementation and financ-
tial policy instruments to promote balanced regional ing; operation and adaptation, promotion and
economic development and inclusive and sustainable marketing; and monitoring and evaluation.
industrialization. • It provides a checklist to gather and analyse infor-
The framework identifies critical issues and outlines mation as part of the process of planning and imple-
the major steps to be taken for the establishment and menting new parks and refurbishing existing ones.
management of an industrial park or special economic • It delineates key success factors and minimum
zone. It provides guidelines, in accordance with inter- requirements, or performance indicators, covering
national best practices, rather than solutions, support- legal, regulatory, social, economic and environmental
ing the decision-making process for establishing new aspects and related topics, to monitor and evaluate
parks and zones and their operation—and enhancing existing or planned parks and zones, with the objec-
existing parks and zones’ effectiveness in promoting tive of contributing to national progress on realizing
ISID of the regions or areas where they are located. the Sustainable Development Goals (SDGs).
viiiAcknowledgements
This publication was prepared by Olga Memedovic. We are grateful to the team at Communications
Contributors to the report include Alessandro Costa, Development—led by Bruce Ross-Larson and includ-
Silvia Conti, Thomas Jackson, Antonella Sarro and ing Jonathan Aspin, Joe Caponio, Mike Crumplar,
Orkhan Saidov. Debra Naylor, John Wagley and Elaine Wilson—for
The publication benefited from valuable com- editing and designing this publication.
ments during the various stages of production from This publication was produced within the frame-
Professor Guangwen Meng of Tianjin Normal work of UNIDO project: “Fostering inclusive and
University and from Sherif Muhtaseb of the World sustainable industrial development (ISID) in the
Bank. New Silk Road Economic Belt: Leveraging potentials
Special thanks go to the international consultants: of industrial parks, zones and cities in Azerbaijan,
Oliver Authried, Iana Iakovleva, Theresa Rueth and Tajikistan, Turkmenistan and Uzbekistan” funded by
Brigitt Roveti and to the intern Adithya Raveendran, the People’s Republic of China.
for their background research support.
xAbbreviations
ADB Asian Development Bank ISID Inclusive and Sustainable Industrial
ABBREVIATIONS
ADR Alternative Dispute Resolution Development
AfDB African Development Bank IT Information Technology
ASCM Agreement on Subsidies and KLIC Kuala Lumpur Internet City
Countervailing Measures KPI Key Performance Indicator
CAREC Central Asian Regional Economic LEED Leadership in Energy and
Cooperation Environmental Design
CK China Knowledge MSMEs Micro, Small and Medium Enterprises
DGNB German Sustainable Building Council OEM Original Equipment Manufacturing
DS Diagnostic Study OSS One-stop Shop
EIA Environmental Impact Assessment R&D Research and Development
ERZ Early Reform Zone RECP Resource-efficient and Cleaner
ESIA Environmental and Social Impact Production
Assessment SDG Sustainable Development Goal
EU European Union SEZ Special Economic Zone
FDI Foreign Direct Investment SME Small and Medium Enterprises
FEMOZA World Free & Special Economic Zones TEDA Tianjin Economic Development Area
Federation TRIM Trade-related Investment Measure
FTZ Free Trade Zone UNIDO United Nations Industrial Development
GATT General Agreement on Tariffs and Trade Organization
GDP Gross Domestic Product VAT Value-added Tax
GIS Geographical Information System WEPZA World Export Processing Zones
ICT Information and Communications Association
Technology WFZO World Free Zones Organization
ILO International Labour Organization WTO World Trade Organization
IPR Intellectual Property Rights
All references to dollar and $ are to the US dollar unless otherwise noted.
xiiChapter 1
What are industrial parks and zones?
Industrial parks are geographical areas zoned for district in Chicago was developed to foster the intro-
industrial and business use, usually on the outskirts of duction of steam and electric power and building
cities. UNIDO defines them as “a tract of land devel- of railways. In Great Britain, the motivation was to
oped and subdivided into plots according to a compre- spread industrial centres across the country.3 Early
hensive plan with or without built-up factories, some- parks varied in both character and size, but all had a
times with common facilities for the use of a group of common feature: the area was planned, and individual
industries.”2 producers had to follow the plan.4 In Western Europe,
Industrial parks come in variety of forms such as since the Second World War, park development has
industrial zones, industrial estates, cities and districts; been guiding industrialization in less developed
technology or innovation areas; science parks or cities; regions and promoting balanced development in line
cyber parks; high-tech (industrial) parks; research and with growth pole theory, developed in the 1950s by
technology parks; science and technology parks; tech- French economist François Perroux.5
nology incubators; and eco-industrial parks. These dif- According to growth pole theory, which became
ferent forms can be situated in special economic zones, popular in the 1960s, economic growth and devel-
export processing zones and free trade zones, which opment are not uniform across geographic spaces.
can also be a part of a larger geographic and economic Instead, they take place in a specific geographic
area, involving multiple countries along the transport location— a pole — dominated by core industrial
corridors and forming the industrial and economic activities, such as steel, automotives, agribusiness, pet-
corridors. rochemicals, electronics, biotechnology or pharma-
Industrial parks began to appear over a century ceuticals, or tourism. Hence the terms technopoles,
ago in the United Kingdom and the United States biopole, e-pole, agropole, and leisure and tourism pole
of America. In the 1900s, the first planned industrial (box 1.1).
Box 1.1
Agricultural growth poles driving economic development in Africa
Agricultural growth poles—also known as agropoles— Ensuring that the new wave of agropoles and growth
present a new trend in Africa’s development strategy. Afri- corridors is effective requires robust policies, laws and
can governments see these growth poles and corridors as a practices to ensure that a possible new trend of invest-
useful tool to attract private investment, promote agricultural ment helps Africa achieve the SDGs. Most important, the
transformation from low- to high-productive agriculture and host-country rural economy must absorb and integrate the
agro-processing and improve the competitiveness of Afri- new investment flows in existing systems of production.
can countries. In Africa, 36 agricultural growth poles and 9 If it fails to do so, there is a real risk that foreign invest-
corridors were established over the last 15 years, covering ment could worsen the situation or create a dual system,
23 countries and around 3.5 million hectares of land. so that small farmers may not benefit from the increased
A key element of agropole development strategy economic activities.
is aggregation: the grouping of farmers around private The agropole strategy is supported with financial and
actors (aggregators) in agri business parks with strong technical support from regional and multilateral organiza-
managerial capacity to deal with land fragmentation and tions, such as the World Bank, the African Development
to ensure that aggregated holdings have access to mod- Bank (AfDB) and the United Nations Industrial Develop-
ern production techniques. The aggregators also play key ment Organisation (UNIDO).
roles in the promotion, processing, monitoring and mar-
Source: Picard, Coulibaly and Smaller 2017.
keting of products.
1These core industrial activities can trigger related flexibility in the use of buildings and space and a wider
activities, through backward and forward links in range of support services supplied to firms. There was
value chains, and the demand for industry-related ser- a gradual shift from ad-hoc private sector licensing to
vices, such as extension services, retail, banking and planned and coordinated public–private partnerships.
WHAT ARE INDUSTRIAL PARKS AND ZONES?
logistics. This creates new jobs, investment, uptake Private involvement led to improved services, greater
of technologies and development of industrial value product differentiation and non-price competition.
chains. A secondary growth pole can emerge at a later Since the late 1990s, parks have been designed
stage with the development of transport hubs and net- with the promotion of new innovative industries and
works. Growth pole theory was further developed and technologies in mind, as well as the creation of attrac-
modified as a theory and strategy of regional develop- tive environments for employees, with housing, medi-
ment in the 1970s, by using spatial policy instruments cal services, shopping and educational establishments.
such as industrial parks and special economic zones. The private sector has been developing, owning and
During the mid-1960s, many regions—especially operating such parks on a commercial basis, with the
in North America and Western Europe—adopted park authority focusing on its role as a regulator, mak-
regional industrial park programmes to promote ing way for private sector expertise to take on core
economic and community development through functions.
large-scale capital-intensive projects and industrial Growing environmental and social concerns in
site development. The purpose was to create new or countries and communities, combined with a short-
improve existing manufacturing facilities through age of resources, has led to the introduction of eco-
planning, development and construction of industrial industrial parks, which have high environmental and
parks and zones. Such programmes set up a framework social standards and apply cleaner and more resource-
for better collaboration among regional and municipal efficient production methods.
actors and developers of industrial parks. Parks, zones, corridors and growth poles have
Driving the early 1970s generation of industrial been used as spatial development policy instru-
parks were public sector development and government ments to support industrial and regional develop-
subsidies for services and facilities. Compared with ment. “Industrial park,” “industrial zone,” “industrial
modern standards, they were very basic, with simple estate” and other similar terms are commonly used as
halls and space for storage. After the crisis years of synonyms, with a general meaning as an area designed
the 1970s, the trend was moving away from provid- and zoned for manufacturing and associated busi-
ing basic facilities and services for heavy industry and ness, which enjoy economic incentives and adminis-
towards providing more sophisticated services for trative privileges as well. If successfully implemented,
technology and high value-added industrial activities. such policy tools can create positive spillovers to the
Precipitating these changes were the advent of indus- rest of the economy. 6 In supporting the formation
trial graveyards in the United States of America and and growth of industrial agglomerations, facilitat-
Europe, the rise of pollution and environmental con- ing the clusters, building value chains and regional
cerns, and the evolution of economic and social needs. innovation systems and promoting new innovative
Also spurring the changes were technological progress industries and technologies, such designated geo-
and significant cuts in transportation costs. graphical areas can be hubs to stimulate investment,
With time, the scope of services became more innovation, technological learning and inclusive and
sophisticated and holistic. In the late 1980s, a new sustainable industrial and economic development,
generation of industrial parks was built with greater nationally and regionally.
attention to the requirements of science, technology Industrial parks have the potential to generate or
and business. In the 1990s, parks emerged with greater strengthen comparative and competitive advantages
2and to remove the binding constraints for develop- to greater industrial diversification and productivity,
ment. They can be a testing ground for new reforms, setting in motion a virtuous growth cycle. By enhanc-
policies and approaches. They can lower the risks by ing the business infrastructure to cut the cost of doing
offering a transparent and effective legal framework, business and attract investment in key transport, logis-
WHAT ARE INDUSTRIAL PARKS AND ZONES?
fiscal incentives, modern management practices and tic, commercial and industrial nodes and by ensur-
governance mechanisms. They can bring institutional ing effective coordination and partnership across the
change by building trust, norms, standards and entre- national, provincial and city levels in developing and
preneurial culture. They can be fertile ground for new implementing such development programmes, coun-
technologies, industries, jobs and markets. And they tries can start this virtuous growth cycle, as explained
can provide high quality business environment, ena- by growth pole theory.7
bling firms to cut costs and realize economies of scale Used incorrectly, they can widen regional ine-
by benefiting from the provision of common services qualities, undermine the livelihoods of small-scale
shared among enterprises. producers and farmers and significantly deplete land,
Parks have also proven to be a key tool for regional water, soil and other natural resources. Ensuring that
development, by implementing a smart mix of hard the new wave of zones, parks and corridors is effec-
infrastructure (such as land, industrial plants, offices, tive and leads to sustainable development outcomes
laboratories and public spaces) and soft infrastructure requires robust policies, laws, regulations, standards
(such as rules, regulations, standards and norms). Their and enforcement mechanisms.
growth acceleration services for companies, jobs and
wealth creation support the revitalization, competitive- Special economic zones
ness and internationalization of local supply chains. The term special economic zones (SEZs) applies to
Used correctly, industrial parks, zones and corri- a delimited area of public or private land within a
dors can attract private investment in selected sectors national territory, dedicated to any kind of economic
that produce positive spillovers to the broader econ- activity, from industry to logistics, commerce, bank-
omy and drive job creation and inclusive and sustain- ing and R&D. They grant tenants such special advan-
able growth. They can facilitate agglomeration econo- tages as favourable location, skilled labour force, local
mies and spread created prosperity from the centres of suppliers, modern infrastructure and utilities, and in
excellence to the periphery. some cases fiscal incentives. They also provide admin-
Agglomeration economies and other growth ben- istrative and security services, such as one-stop-shops
efits can be realized from hub development around for processing business licenses and in-house customs
transport nodes and urban and industrial centres. offices. And they can offer such support services as
And deepening transportation networks can trig- consulting, training, technical guidance, information,
ger a web of secondary agglomerations around those joint research facilities and business support includ-
nodes and hub centres, creating industrial and eco- ing quality assurance. This broad definition includes
nomic corridors. By efficiently linking industrial and industrial zones, export processing zones, free trade
logistics hubs, economic linkages and networks can zones, free zones and other similar terms. 8
extend over an even larger mega-region, dramati- SEZs are often located close to regional or inter-
cally expanding markets, fostering divisions of labour national transportation hubs (airports and shipping
and shaping patterns of regional economic develop- ports) to facilitate fast transfers of goods at lower cost
ment. Greater connectivity, network development using modern large roads. Within zones, modern
and market integration—combined with policies to infrastructure and utilities include reliable electri-
strengthen enterprise clusters and networks along cal and water supplies, world-class telecommunica-
and among the production value chains—will lead tions (such as full telephone and fibre optic/internet
3connectivity), centralized waste management and with Hong Kong, now a trade hub and one of China’s
modern housing and townships. largest cities with more than 18 million people, more
The fiscal incentives may include tax exemptions than 80 percent migrants (box 1.2). Cities in China
for exports, imports and property, long and short-term also have a high concentration of industrial parks rela-
WHAT ARE INDUSTRIAL PARKS AND ZONES?
credit at preferential rates, VAT exemptions for energy tive to other geographic locations.
electricity, gas, fuel, oil and water, special rates for tele-
communications services, direct subsidies for rents, Beyond standard models
better access to finance and lower income taxes. The An ancient maxim of Roman jurists, omnis determi-
range of these facilities and incentives may vary by a natio est negatio—“every definition is a negation”—
country’s level of economic development. They may warns about the limits of classifications based on defi-
be administered by national, regional or local govern- nitions. Peter Warr and Jayant Menon in their study
ments, by the private sector or in partnerships. on Cambodia’s SEZs11 connect the nature and effec-
Modern SEZs also come in many types and sizes tiveness of SEZs— beyond their definition according
from general purpose to specialized; from very small, to governing laws or strategic planning documents
offering duty-free warehousing of goods in transit, to —to the host country’s stage of development. As they
those offering special governance regime for an entire put it: “A serious limitation of the literature on SEZs
metropolitan area. Since the mid-1980s, the number is that it tends to search for both the characteristics
of zones has grown rapidly in almost all geographical of SEZs and the benefits the host country may expect
regions, with especially dramatic growth in develop- from them, which are similar for all host countries.
ing countries. The ILO identified nearly 30 forms of It largely overlooks the fact that host countries vary
SEZs ranging from zones in China, which encompass greatly in their level of development, from primarily
entire provinces to much smaller fenced-in economic agrarian African economies, to middle-income indus-
zones.9 About 75 percent of the world’s countries have trializing economies in Asia and finally to advanced
SEZs, and their number is estimated between 4,500 industrial economies in Europe, North America and
to nearly 10,000 (with small single-factory zones some Asian countries.”12
counted in).10 What differentiates the various categories of
In China, SEZs have attracted millions of people industrial parks and zones—as administrative and
looking for jobs and have been integral to China’s legal units and spatial economic policy tools—are the
rapid urbanization. The country’s first SEZ opened in type of facilities, services and incentives they provide
1980 in Shenzhen, then a small town near the border and the industries they are hosting based on local
Box 1.2
Special economic zones in China
In China, SEZs refer to large, multifunctional and compre- jobs (60 percent of them for women). They also act as cru-
hensive zones or areas—such as Shenzhen, Zhuhai, Shan- cibles for major reforms—for example, in land, labour and
tou, Xiamen, Hainan, Shanghai Pudong New Area, Tianjin taxes. Shenzhen SEZ, China’s FDI gateway, was a testbed
Binhai New Area and the recent Xiongan New Area—as for economic reform. Shenzhen was the first city in China to
well as economic and technological development zones carry out reforms in land tenure, the labour market, public
(ETDZs), free trade zones (FTZs), export processing zones administration, the financial system, state-owned enter-
(EPZs) and high-tech industrial development zones (HIDZs). prises and taxes, and the first to set up equity and foreign
Zones and parks have had a profound impact on eco- exchange markets. In 1978 GDP per capita in Shenzhen
nomic development in China. Seven SEZs, 54 HIDZs and was $89; by 2015 it had risen to $26,071. The population
more than 2,000 industrial parks account for 22 percent of was 300,000 in 1978 and stood at 10.8 million in 2015.
GDP, 46 percent of FDI, 60 percent of exports and 30 million
Source: UNIDO 2018.
4cooperative advantages and the vision for developing Parks and zones can also lower risks by offer-
new competitive industries. And this depends on the ing transparent and effective legal frameworks, fiscal
types of industries and activities parks and zones are incentives, modern management practices and gov-
to host as well as on the country’s socioeconomic and ernance mechanisms. They can bring institutional
WHAT ARE INDUSTRIAL PARKS AND ZONES?
institutional development. change by building trust, norms, standards and an
In the context of an overall development and entrepreneurial culture. They can be fertile grounds
industrialization strategy, location-specific develop- for new technologies, industries, jobs and markets.
ment projects and programmes establishing parks Concentrating certain industries and industry-sup-
and zones can overcome various market and insti- port services, and marketing them well, attracts new
tutional failures. They can leverage comparative investors and talented people. Their concentration
advantages to raise regional and national industrial can also enhance the trade efficiency of domestic
competitiveness and achieve more balanced regional firms. They can use leveraging of local SMEs linkage
distributions of production and job opportunities. to global value chains for acquiring new technology,
And they can foster the uptake of clean technologies information and market access and for industrial
and practices. upgrading and modernization.
Parks and zones can also provide an institutional Parks and zones can be catalysts for smart spe-
framework, modern business development services, cialization and diversification, linking industry, aca-
physical infrastructure and information and tele- demia and government—and fostering technological
communications technology that may not be avail- learning and innovation. That can induce structural
able elsewhere in the country. They can be testing changes in production and the economy—and create
grounds for new reforms, policies and approaches to new activities and jobs. Industrial clusters of SMEs
improve the business environment and become the can be developed through collective learning and
stepping stone of wider country liberal policy reforms, innovative behaviour and provision of appropriate
as in many East Asian countries. Governments can cluster-support structures, and various programmes
experiment with establishing parks gradually to see for capacity building and promotion of SME devel-
whether they produce public goods and other benefits, opment. Training and skilling can improve labour
such as foreign exchange earnings, government rev- productivity and integrate disadvantaged populations
enue, export diversification, increased investment and in urban and rural areas into productive industrial
greater trade efficiency among domestic firms, that activities. Buyers, producers and suppliers can operate
otherwise would not have happened and whether they in the same location, reducing the transaction costs of
can be gradually replicated in other locations. China economic learning while establishing new standards
has followed this approach to gradual lateralization, and norms of entrepreneurial behaviour. Companies
in contrast to the rapid liberalization approach that in industrial parks often benefit from cooperation
countries in Eastern Europe and some countries in and competition of other companies, multiplying the
Central Asia have followed. effects on innovation and learning. And parks with
Carefully planned, designed and integrated into university research centres stimulate universities to
national and regional development strategies, they work more with industrial companies—and in time
can achieve economies of scale in large industrial to locate some of their departments close to the park.
complexes (cutting the cost of capital investment) and Successful parks and zones also use the services of
further reduce costs in the provision of common high- local companies, creating backward and forward link-
quality specialized services and facilities. Their prod- ages in the local economy, and diffusing acquired knowl-
ucts can diversify a country’s exports and increase its edge and technology to the wider business community
foreign exchange earnings. in the country. They can thus become growth and
5innovation hubs, fostering uptake of new Industry 4.0 developed Southeast Asia. They have provided
technologies, creating high-growth regions and driving women the opportunities to gain financial inde-
national industrial and economic development. pendence and to expand their personal autonomy
A new generation of industrial parks is building and life choices.
WHAT ARE INDUSTRIAL PARKS AND ZONES?
more resilient economies and achieving social, eco- • Middle-income developing countries use them to
nomic and environmental objectives. They can set facilitate the formation of industrial clusters and
minimum requirements or sustainable performance to attract investment in high-tech industries.14
standards, against which existing, or planned new • Transition economies use them to address cumber-
parks can be assessed, to foster inclusive and sustain- some administrative business start-up and import/
able industrialization. export procedures; inconsistent rule of law; weak-
Countries at different level of economic develop- nesses in infrastructure and business development
ment use parks and zones to foster their respective services. As experimental tools to consolidate a
economic development objectives, including increased market economy, they provide the institutional
government revenues:13 framework, modern services and a physical infra-
• Low-income developing countries, with low pro- structure that may not be available in the rest of
ductivity and employment in agriculture, use the country. Some examples of possible solutions
parks and zones to attract investment and create to specific problems that frequently arise are pre-
jobs in traditional low- and medium-skilled light sented below (table 1.1).
industries, such as leather and apparel in Sub- • Post-crisis countries use them to offer relatively
Saharan Africa (box 1.3), South Asia and less secure and stable environments for the private
Box 1.3
Industrial parks in Ethiopia boost industrialization by focusing on light industry and leveraging
partnerships
The Ethiopia strategic orientation for industrialization is to attract private sector investment. They will act as a spring-
capitalize on the country’s competitive advantages and board for the transformation of Ethiopia’s economy: from
to focus on labour-intensive light manufacturing such as one based on agriculture to one driven primarily by light
leather, apparel, textiles, agro-processing and electricity, industries.
supported by the promotion of industrial parks, which cir- Three integrated agro-industrial parks are under
cumvent business climate impediments through simplified development in the Amhara, Tigray and the Southern
procedures, tax advantages and easy access to financial Nations, Nationalities and People’s Region, with a fourth
services. set to start soon in the Oromia region. In addition, the gov-
UNIDO launched a Programme for Country Partner- ernment is establishing an environmentally-friendly leather
ship in Ethiopia in June 2014. The Programme brings tanning district with a state-of-the-art common wastewa-
together development partners, UN agencies, financial ter treatment plant to reduce the environmental impact of
institutions and the business sector, under the leadership leather processing. Net FDI increased from $4.2 billion in
of the national government. It helps achieve the goals set 2016 to $4.9 billion in 2017, driven by the new industrial
out in the country’s industrial development strategy and parks.
Growth and Transformation Plan II (2015–2020) to achieve The authorities are advancing reforms to improve the
middle-income status by 2025 and increase the contribu- business climate and enhance competitiveness, and sub-
tion of manufacturing and industry to GDP. stantial resources have been deployed to develop road,
The Programme focuses on three light manufacturing rail, dry ports, air transport, energy, telecommunications,
sectors: agro-food processing, textiles and apparel and water and irrigation infrastructure to reduce the cost of
leather and leather products. The sectors were chosen doing business, and improve productivity.
for their prospects for job creation, strong linkages to the
Source: IMF 2018.
agricultural sector, high export potential and capacity to
6Table 1.1
Frequent operational issues and possible solutions where markets are still not fully developed
Issue Good practice examples
Timely and effective legal Adopting a high standard alternative dispute resolution (ADR) system.
WHAT ARE INDUSTRIAL PARKS AND ZONES?
framework enforcement
Targeting traditional and Revamping old industrial regions to attract new investors interested in developing
consolidated markets and producing more sophisticated and higher value-added products for the same
target market, eventually promoting a lead firm.
Supporting and monetizing Equipping a new or existing textile zone with a cutting-edge service centre, able
traditional business and to support investors in choosing raw materials and yarns, designing fashionable
manufacturing cultures products, training workers and searching for buyers and subcontractors.
Creating a dairy product zone in a territory traditionally populated by dairy cattle
breeders to concentrate and support them in selecting and improving breeds, the
collection and treatment of milk, the production, packaging and marketing of high-
quality cheese.
Natural beauty, historical heritage Localizing a new—or expanding an existing—zone neighbouring territories rich in
or archaeological sites natural beauty or archaeological sites could generate new firms, manufacturing
products and gadgets for tourists, creating and maintaining touristic trails,
promoting and managing farm housing.
Important universities or research Creating, expanding or specializing a zone strongly connected to universities or
centres research centres to generate technologies to produce innovative products usually
rare in developing or transition countries.
Supporting a lead anchor firm to provide the engine for attracting other
technological investors.
Craft and family business tradition Creating a zone to promote and facilitate the development of small and medium-
size enterprises in service industries, such as low-cost utilities, business planning,
marketing, legal services and others.
sector to operate, to enhance competitiveness and • The most advanced countries have eco-industrial
to revitalize the economy. Countries with fragile parks, technology parks and innovation areas or
situations—those with high risk of institutional districts (as in Germany, Singapore, Switzerland
breakdown or violent conflict—use SEZs to and the United States of America). As countries
address drivers of fragility and build resilience.15 achieve a higher stage of economic development,
• Resource-based economies use them to diversify stronger environmental regulations make eco-
the economy by stimulating investments in related industrial parks and zones not only to comply with
products and creating value chains. environmental regulations but also to be finan-
• High-growth and emerging economies use them cially profitable for industries.
to support technological deepening and upgrading • Urban areas in advanced economies and some
in existing value chains and to foster the uptake of developing countries use technology parks to com-
clean technologies. pete in the knowledge-driven economy.
• Subnational local economies use them to stimulate Countries can further use SEZs to target a specific
investment and leverage local comparative advan- location, origin of investor, industrial sector, or busi-
tages (assets, history, culture, human and material ness or value chain segment:16
resource base) through cluster development. • Location: urban centres; semi-urban, in towns
• Developed countries and some developing coun- within mixed urban and rural areas; or rural, in
tries use them to foster linkages with the rest of towns in predominantly rural areas.
economy and with international production and • Origin of investor: local, comprising mainly
research networks to create new innovations, as in domestic investors, or international, also including
Germany, Malaysia and Singapore. businesses run by foreign investors.
7• Industrial activity: one industry such as pharma- • Business or value chain segment: supporting a spe-
ceuticals, automotive or metal works; related and cific value chain segment or business segment, such
unrelated industries; or other economic activities as start-up businesses or micro, small and medium
(table 1.2). enterprises (MSMEs) and their clusters serving
WHAT ARE INDUSTRIAL PARKS AND ZONES?
key players in global value chains.
Table 1.2
Examples of specific zones
Type of zone activities Development objective Activities Markets Examples
Technology or science Promote high tech High technology Domestic and export Singapore Science
parks and science-based activities Park, Singapore
industries
Petrochemical zones Promote energy Petrochemicals and Domestic and export Laem Chabang
industries other heavy industry Industrial Estate,
Thailand
Financial services Development of Offshore financial and Export Labuan Offshore
off-shore financial non-financial services Financial Centre,
services Malaysia
Software and internet Development of Software and other IT Export Dubai Internet City,
software and IT services United Arab Emirates
services
Airport-based Air cargo trade and Warehousing, Re-export and Kuala Lumpur Airport
trans-shipment trans-shipment domestic Free Zone, Malaysia
Tourism Integrated tourism Resorts and other Export and domestic Baru Island, Colombia
development tourism
Logistics park or Support logistics Warehousing, Re-export D1 Logistics Park,
cargo village trans-shipment Czech Republic
Hi-tech park Biopharmaceuticals Cluster of similar Export and domestic Zhangjiang Hi-Tech
industries Park
Source: Akinci and Crittle 2008; UNIDO.
8Chapter 2
Traditional parks and zones
In recent decades, a classification of zones has sprung Sub-Saharan countries are trying to follow such a
up according to specific objectives: pattern.
• Driving economic reform processes in countries— As it became evident that SEZs were helping to
early reform zones. foster structural transformation in China, other
• Promoting exports, with a special trade regime, countries began working with China to share its
where tariffs, quotas or duties differ from the rest experience.18 Establishing and operating the Chinese
of the country—export processing zones. bilateral zones result from bilateral cooperation
• Promoting free trade regimes, as in the EU—free objectives with many countries, mainly in Africa,
zones. needing assistance or tutelage in building and manag-
ing zones (box 2.1).19 The Chinese bilateral zones—
Driving economic reform: early reform especially in Africa—are facing the traditional prob-
zones lems of large industrial and infrastructure projects
Early reform zones (ERZs) can be policy tools for in developing and transition countries (like sustain-
restructuring rent-distorted economies and for driv- able access to water and power; synergies with local
ing substantial economic and business environment universities, technology institutes and local commu-
reforms.17 They provide such critical post-reform con- nities; and lack of institutional weaknesses and sup-
ditions as world-class infrastructure, business friendly plier programmes). Establishing these zones involves
services, property rights and the rule of law—to rap- partnering with Chinese developers (state owned
idly expand a dynamic market economy. In such coun- and private), the Chinese government and African
tries, zones can be experimental areas for liberalizing governments. 20
business and trade and for attracting foreign invest- Nonetheless, the partnership formula could be
ment. The most relevant example is China (see, for effective, since Chinese partners are driving the
example, Shenzhen, Zhuhai, Shantou and Xiamen in SEZ creation and operation process, contributing
the late 1970s and Shanghai in the 1990s), but some their experience in infrastructure construction and
Box 2.1
Chinese-led public–private partnership
China Fortune Land Development Co., Ltd. (CFLD), a Through its partnerships, CFLD engages in planning,
leading real estate developer founded in 1998, estab- designing, land consolidation, investment, infrastruc-
lished an international department in 2015 to boost the ture construction, public facility development, industry
construction of new industrial parks overseas. Guided by investment solicitation and city operations services. It
its commitment to green development, quality of life, con- continues to support innovation and uptake of new tech-
tinuous innovation and bringing industries together, CFLD nologies following the model of establishing incubator-
recently developed industrial parks in Egypt, Indonesia, accelerator-specialized park-new industry cities and
India, the Philippines and Viet Nam and has committed to promotes global innovation networking through various
co-invest and develop an SEZ in Brunei. platforms. Together with TechCode, it recently created
CFLD’s core strategy aims to integrate global incubation platforms with a global innovation network
resources and provide the regions where its new industry covering six countries and regions, and it has set up
cities are located a comprehensive solution to industry more than 10 incubators in Berlin, Tel Aviv and Silicon
upgrading and economic development through industry Valley.
research and planning and industry investment within the
Source: http://en.cfldcn.com [accessed May 7, 2018].
industry service operation.
9managing the zone. Chinese bilateral zones (in com- EPZs were first used by developing countries as
bining top-down and market-driven approaches) part of an export-oriented industrialization strategy
could thus represent a benchmark for the establish- and as the second-best policy tool, after a free-trade
ment of zones in other parts of the world including regime. The purpose was to increase exports by attract-
TRADITIONAL PARKS AND ZONES
Central Asia, but other industrial countries could ing foreign investment. This was accomplished by com-
also establish bilateral zones in the framework of their bining in one place the advantages of a free trade zone,
bilateral economic and social aid schemes for develop- an industrial estate and all the relevant administrative
ing countries. offices of the government—as in Taiwan Province of
China in the beginning of the 1960s (box 2.3).
Export processing zones Early EPZs in East Asia targeted low-skilled
Export processing zones aim to increase exports and light industries, such as textiles and apparel, plastic
attract export-oriented investment and manufac- products and electrical appliances, tapping abundant
turing, accelerating the entry of foreign capital and cheap labour. As country infrastructure, administra-
technology. They enhance productivity, economies tive procedures and the overall business environment
of scale and access to foreign markets by providing a improved, these types of zones became redundant and
special trade regime and more effective administration unnecessary.
than in the rest of national economy (box 2.2). Fiscal First-mover advantage was one reason for the EPZs’
incentives to export firms include duty-free access to initial attraction for investors. EPZ were established
imported equipment and material, as well as simpli- in Taiwan Province of China and Republic of Korea,
fied procedures for trade. Firms outside the zone have when the first wave of globalization of production was
to obtain duty- and tax-free imported inputs through creating new international division of labour in labour-
a rebate system while firms in the zone can avoid intensive, light industries, led by offshoring practices of
all the formalities connected with obtaining these multinational enterprises to reduce production costs.
rebates. Investors can start their projects quickly and Few other countries had EPZs, so they faced little
could run them with minimum bureaucratic fuss. But direct competition. By the late 1950s labour-intensive
firms in the zone are required to export most of their industries were relatively well developed in the two
production, keeping it out of the domestic market. countries, attracting Japanese foreign direct investment
Box 2.2
Export processing zones (EPZ)
The key to East Asia’s economic success was the move competition for FDI among neighbouring EPZs resulted in
from mere assembly of imported intermediary inputs, in the race to the bottom: lower wages, currency deprecia-
export processing zones, to a more domestically inte- tions that heightened already substantial wage differences
grated and higher value-added processes known as full- in the region, and lower standards of living while doing
package supply or OEM (original equipment manufactur- nothing to improve productivity.
ing) production and products for export. EPZs helped Mauritius transition from exporting
By the early 1990s, EPZs had become a leading bananas and sugar to exporting textiles and apparel.
source of exports and manufacturing employment in sev- Between 1982 and 1990, the number of firms in EPZs,
eral Caribbean countries, with the Dominican Republic dominated by textiles and apparel, rose from 120 to 570,
a leading example. These EPZs also helped the country while employment in these companies quadrupled from
take advantage of preferential access to the United States 20,000 to 80,000. About 70 percent of apparel exports
of America. In the mid-1990s, 430 companies employed (over $770 million in 1990) went to the European Commu-
164,000 workers in 30 free-trade zones, and three- nity where Mauritius has privileged access.
quarters of the firms were in textiles and apparel. The
Source: Gereffi and Memedovic 2003; Memedovic 2010; Heid, Mario and Riaño 2013.
10Box 2.3
Kaohsiung EPZ, Taiwan Province
EPZs put Taiwan Province of China squarely on the path of the 1980s and to around 48 percent recently. Between
export-led industrialization. The first EPZ was established late 1967 and 1976, total employment in the zones grew
TRADITIONAL PARKS AND ZONES
in the southern port city of Kaohsiung in 1965, as part of 13-fold and, in 2009 accounted for 58,002 and currently
an export-oriented industrialization strategy. to 81,045 (12.4 percent are foreign nationals), the high-
The zones offered better infrastructure, simplified est in this century. The workforce is better educated, and
administrative procedures, freedom from red tape, and 7.5 percent of zone employees hold graduate degrees.
efficient transportation links with the rest of the country. The original site, a 68.3-hectare plot next to the city’s
But until 1986 the zones’ manufacturers were required harbour, filled up so quickly with factories that within five
to export everything they produced. Enterprises that years, new zones had been designated in what are now
invested in the EPZ had already established their export Taichung City’s Tanzi District and in former sugarcane
markets and during the early years helped promote Taiwan fields in Kaohsiung’s Nanzi District.
Province of China as a supplier of light consumer goods. Cumulatively, exports from EPZ tenant enterprises
Among early investors in the zone were companies have earned Taiwan Province of China around $76 billion.
that helped establish the foundations of Taiwan Prov- Seven EPZs, a logistics park and two software parks now
ince of China’s electronics, optics and TFT LCD display cover 530 hectares, with 602 tenant companies. Manu-
industries, including Canon, Hitachi and Philips Electronic facturing tenants pay a service charge of 0.08 percent to
Building Elements Industries (now known as NXP Semi- 0.22 percent of turnover (to reward success, the rate is
conductors Taiwan Ltd.). regressive). Total sales of the Kaohsiung Software Park
Of the 161 factories in Kaohsiung’s EPZ in 1972, 37 approached $15 billion in 2015, and 100 percent of the
were in electronics, 37 in textiles and apparel and 21 in land (but not all the office space) in the Taichung Software
handicrafts. Today, the EPZs’ most important tenants are Park has been rented out.
semiconductor testers-and-packagers and LCD compa- The science parks in Hsinchu, Taichung and Tainan
nies, flat-panel displays for mobile phones and compo- now enjoy a higher profile than the EPZs, but they ben-
nents for photovoltaic arrays. Intangible digital goods like efited from Taiwan Province of China’s experience with the
apps, animation and cloud computing are also coming out EPZ: especially the statute for establishing and adminis-
of the zones’ software parks. tering the science parks, of the one-stop shop provision
EPZ tenants have become important customers for of services and the factory land are all copied from the
companies outside the zones. In 1967, around 2.1 percent export-processing zones. In 2010, the Nanzi Export Pro-
of the inputs shipped into Kaohsiung’s EPZ were of local cessing Zone II (NEPZ II) was created.
origin, this rose to 17 percent by 1973, to 33 percent in
Source: Crook 2017.
(FDI) and establishing linkages with domestic pro- • Single management/administration.
ducers, which made it possible for zone enterprises to • Various benefits provided to enterprises located
establish linkages with domestic producers. within the area or zone.
• An operating infrastructure and supporting busi-
Characteristics and developmental needs ness services to client companies.
addressed • Separate customs area (duty-free benefits) and
While industrial parks and zones can be used for dif- streamlined procedures.
ferent objectives, they share the following common • Ensuring industrial safety and security in the area.
characteristics: Parks and SEZs as policy instrument address fol-
• Geographically delimited area, usually physically lowing developmental needs:
secured (fenced in), where several firms are estab- • To serve as a policy vehicle for effecting gradual
lished, such as manufacturers, traders and other reforms, using a pilot programme to implement
service providers. such reforms on a zone by zone basis.
11• To attract new business and foreign investors by Less advanced and transition economies can
providing an integrated infrastructure and busi- attract investors also based on different factors. Some
ness services. of such appealing factors are:
• To foster ISID through promoting uptake of clean • Sufficient political and macroeconomic stability,
TRADITIONAL PARKS AND ZONES
technologies and practices for addressing climate as well as a solid level of protection of business and
change and environmental issues. investments.
• To concentrate dedicated infrastructure, business • Consolidated historical tradition to supply indus-
facilities and services in a well-defined and secured trial or agricultural products to markets of neigh-
area. bouring countries, as in the former Soviet repub-
• To provide transportation access, especially with lics close to the Russian Federation.
more than one transport modes, highways, rail- • Traditional business and manufacturing culture of
roads, airports, ports. the local communities, for example growing cer-
• To boost exports, create jobs and alleviate tain agricultural crops, cattle husbandry, textile or
unemployment. carpets weaving, as well as products manufactured
• To foster social, environmental and economic per- in the old industrial conglomerates.
formance and set examples for the rest of economy • The availability of natural beauty, like lakes, rivers,
and contributing to realize the SDGs. mountains or archaeological sites.
• The concentration in one or more universities or
Why do investors, both domestic and research centres of potential to produce innova-
foreign, choose to start activities in a tions capable of becoming productive technologies.
specific park or zone? • A widespread tradition of craft or family business.
The considered literature points out the following Such different factors could become the pillars for
reasons: economic development of many countries, provided,
• Country political and macroeconomic stability, however, that the strategy for positioning and estab-
costs of doing business, labour skills, proximity to lishing new SEZs—or re-orienting and revamping
target markets and infrastructure as well as stage the existing ones—is not based on theoretical names
of manufacturing development. and definitions, but on the SEZ features requested by
• Obtaining cost advantages on the most important potential investors.
productive factors: labour cost; labour relations; Over the last decade, interest in EPZs has grown
reliability and cost of infrastructure, particularly again in many developing countries. There are now over
electricity, that largely impact overall costs, espe- 4,000 EPZs, which is over 3,000 more than 20 years
cially for heavy industry; simplified import and ago.21 More than 25 percent of world trade is carried
export procedures; and finally, the costs and prob- out at free zones.22 The highest levels of EPZ-based
lems caused by corruption. exports tend to be by developing countries, including
• Overall business regulatory environment, both in China, Egypt, Indonesia and the Philippines, although
terms of laws and regulations protecting invest- EPZs in New Zealand, Ireland and the United States of
ment and business and actual enforcement of such America are also among the largest by export quantity.23
rules.
• More secure and comfortable location. What do changes in international trade
• Proximity to target markets, through sound trans- rules mean for EPZs?
port infrastructure: roads, ports, airports and New international trade rules mean that some of the
inland waterways. traditional incentives for EPZs, such as tax breaks for
exports, are no longer in line with the WTO rules. In
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