Economic zone programs have helped countries in Southeast Asia move from agriculture to export-oriented manufacturing. Photo credit: iStock/faidzzainal.
An Asian Development Bank study shows how the subregion can create a single market and production base through cooperation and competition for investment in economic zones.
A strategy that promotes cooperation alongside competition can turn economic zones into investment havens and cross‑border production networks in BIMP-EAGA. This “coopetition strategy” aims to harness the potential of these zones to drive sustainable, resilient, and inclusive recovery from external shocks, particularly the COVID-19 pandemic.
Economic zones are at the center of industrial policy in the four BIMP-EAGA countries—Brunei Darussalam, Indonesia, Malaysia, and the Philippines. These government-designated or approved industrial estates have flourished in these countries since the late 1960s, helping them to move from agriculture to export-oriented manufacturing and become part of global value chains.
However, in the BIMP-EAGA subregion, which was created to spur development in remote and less developed areas, the development of special economic zones (SEZs) and other economic zones has lagged behind the strong growth of industrial estates in national capitals and economic centers.
Aggregation of resources
A study from the Asian Development Bank (ADB), the first of its kind, maps out and reviews the economic zones in the subregion, identifies the challenges they face, and recommends policy actions to strengthen BIMP-EAGA growth corridors and economic zone programs through a coopetition strategy.
“The central idea is that cooperation enables countries to augment the spatial capabilities by ensuring access to subregional resources and markets, which they can use to compete for more investment in their respective zones,” says the study, which was led by Aradhna Aggarwal, an internationally renowned SEZ expert and professor at Copenhagen Business School.
At the 24th BIMP-EAGA Ministerial Meeting in Kuala Belait, Brunei Darussalam in November 2018, BIMP-EAGA ministers requested ADB, as regional development advisor, to conduct a study on SEZs development and cooperation toward prosperity.
SEZs by the numbers
According to the ADB study, there are 145 economic zones in the subregion. These include those that are already operating and those still being developed. There are plans to build more.
SEZs, which are typically set up to entice export-oriented enterprises, particularly those with foreign investments, number 64 in the subregion, and most of them are in the Philippines and Indonesia. In 2003, there were only 25 SEZs.
SEZs are also used by governments to promote can import‑substituting activity or investment in priority industries. “In today’s world, they have become a critical tool for developing countries to plug them into global value chains,” the study notes.
Policy recommendations
Subregional and domestic factors hinder the growth of economic zones in the subregion. These include gaps in transport connectivity and trade facilitation, institutional constraints, lack of harmonization of policies and standards, and border security threats.
The study underscores the importance of integrating subregional initiatives into national development planning. “Challenges arise due to trade-offs between cross-border cooperation gains on the one hand and national development goals, national sovereignty, border security, and social and environmental concerns on the other,” it says. But these may be overcome through a “comprehensive strategy that incorporates the elements of both collaboration and competition.”
This strategy can play a critical role in pandemic recovery. The study sees the growing relevance of transborder subregional programs in the new normal. “During this pandemic, for instance, the food industry has emerged as a critical industry. The BIMP-EAGA subregion, which has a competitive advantage in food and palm oil, can leverage its advantages by fostering cross-border aggregation through cross-border cooperation and become a global supplier of food.”
The study proposes four strategic interventions through collaboration:
- Promote cross-border connectivity and mobility of people, goods, and freight. The study says “cross-border value chains can help build formidable industries through the aggregation of resources and markets; R&D cooperation; branding, packaging, storage, and logistics facilities; and distribution and marketing in the region if economic corridors are implemented effectively.”
- Develop regional capabilities with a broader policy package, which covers competitiveness issues (e.g., innovation, networking, quality of human capital, knowledge infrastructure, finance, and entrepreneurship) and supports micro, small and medium-sized enterprises (MSMEs). The study suggests focusing on “leveraging the digital revolution in promoting MSMEs and MSME alliances and industry consortia across the subregion.”
- Promote regional and cross-border value chains. The study proposes “a joint subregional project of creating a unified digital BIMP‑EAGA market for business-to-business (B2B) and business-to-consumer (B2C) transactions.
- Adopt a rigorous branding and marketing strategy. Promote the subregion as a global hub for food industries (i.e., halal, fisheries, seaweed) and investment destination not just for food but also mineral-based and energy industries.
The study also proposes a multipronged competitive strategy to improve the SEZ investment climate, comprising of micro (e.g., one-stop shop and custom facilitation, social infrastructure, training centers), meso (improved business environment in surrounding regions and urban development), and macro (economic reforms and ASEAN agreements) elements.
The study is also recommending that the subregion adopt sustainability principles in selecting the location of economic zones and in developing master plans.