Tuesday, June 7, 2016

From Russia, With Compliments: Special Economic Zones

I will soon approach the 5th anniversary of the first time that I recommended the establishment of Special Economic Zones (SEZ) in Greece. The idea was/is rather simple: since it is impossible to reform an entire country from A-Z in a reasonably short period of time, one establishes pockets in the economy (SEZ) where one can overnight offer ideal business conditions for investors. If the SEZ work well, they will rub off on the rest of the economy over time.

Needless to say, I was crucified by many readers. The criticism was that I aimed at establishing Chinese-style sweat shops in Greece, etc. So like with so many other ideas which I had ventilated in this blog, I eventually gave up writing about SEZ.

And now I read that Russia is establishing SEZ for domestic and foreign investors. This comes from a report published by Austria's official Chamber of Commerce (in German). To quote from the report:

"Russia wants to promote the establishment of new domestic and foreign operating companies. Among various instruments to achieve that, Russia has created Special Economic Zones. SEZ are spread throughout Russia and they are designed to promote certain industries. They offer investors tax advantages, exemption from duties, simplified administrative procedures and new infrastructure".

I link below one of the very many articles I have written about the subject of SEZ.

Special Economic Zones


  1. Special zones will serve special interests. This is a good way to further enrich Putin's friends. In the end, implying that Russia, a third world country, is a model for Greece borders insulting. Of course, there are a lot of Putin/Russian admirers in Greece and that may be music to their ears.

    In the end what would happen is that Tsipras/Samaras/etc will spread some wealth to their friends. Better have something general -make Greece a good place to invest and do business- than special -make (say) Kalamata a good place for agriculture-.

    Government is not good at predicting who the winners and losers are; it's not her business anyway.

    Bad bad bad idea.

    1. I am afraid you belong to the group that doesn't understand (or doesn't want to understand) what I am proposing.

  2. Why choose Russia as a role model? Stick to Venezuela as Tsipras told you.

    1. To be sure, I am not suggesting to take Russia as a role model. Neither China, which is often cited as the worst example for SEZ. All I am saying is that one should study how SEZ work elsewhere, be that in Russia or Cuba, and then develop a tailor-made solution for Greece. There is no doubt in my mind that SEZ, if properly designed, will promote investment and growth (and positive change throughout the economy).

  3. We have been here before, SEZ's only work in countries where the government can and will keep their promises. Or, where the government govern. And, as one of your contributors write, it is an insult to compare Greece with Russia.
    Most people perceive political risk as nationalization and arbitrary taxation only, wrong. A SEZ is not a sovereign "island", it has a large interface to the rest of the country. How about an SEZ not having access to water, electricity, sewage, telecommunication, mail, police security, roads, rails, ships and its work force? In a country where the government prompt the population to strike against its own laws the above scenario is very likely.
    Anybody, who places himself in a position where he can be blackmailed by Greece, is naive.
    PS. The Chinese banks extend big loans (investments) to Greek ship-owners for ships build in China. Mind you, the ships can be re-possessed in accordance with international law. What do you think the chances are of re-possessing a car factory in Lamia? What do you think the value of that factory is, once it has been demobilized and mobilized in another country?

  4. You should take a look at the countries that have SEZ's and tell me where it has been a success. The lack of success is not due to lack of time, some of them have been operating for 40 years.
    Apart from the investment, I consider it a success if it, for the whole country:
    Raised the GDP.
    Increased the exports.
    Accelerated technology transfer.
    Improved the business environment.
    Enhanced the managerial skills.
    Elevated the work ethics to a higher level.
    Raised the quality of the human capital.
    In short, did it increase the productive capacity of that country?
    The above frame does not fit The Democratic Republic of Congo, the only country on the list it fits is Poland. Poland is a special case, it had the qualities, it just needed the capital. The Polish SEZ's are far from the normal sweat shops, they are high technology centers operated by highly skilled and motivated mechatronics, engineers and administrators. They are placed smack in the middle of a region that has done advanced engineering for centuries. Some of them are competing with the Frauenhofer institute. they achieved that, not by leap frogging, jump starting or short cuts, but by hard contentious work. And they did that in spite of 40 years of crippling communism.
    Now you, (and Greece) may say that all Greece need is the capital, I beg to disagree. Greece start from a different level, and as long as they deny it the process cannot start.

  5. At the level Greece start from the competition is fierce. We all wanted globalization, now we must live with it.

  6. The Polish SEZ are only pockets of industrial-political-military units left over by the nazis in Silesia, they should have been demolished by the allies after the war. We do not need any arbeit macht frei camps here in Greece.

  7. Ironic, last weeks Russian media was also full of reports claiming that they will close several SEZ's and not engage in new ones, as they are considered in efficient.

  8. @ Anonymous June 13, 1052 hours.
    Now that you have lectured me on the moral habitus of Poles working in their SEZ's, can I have your take on their industrial-scientific-economic achievements? After all that was what I commented upon.
    I have not advocated SEZ's in Greece, on the contrary, although for reasons that differ from yours.
    I would not use "Arbeit Macht Frei" camps, as a description of any work unit in a democratic country, I find it in bad taste. However, the fact that it has been misused does not diminish its validity.