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Economic Development and Employment Zones, ZEDEs

By: Henry Merriam - Dec 27, 2013, 4:00 pm

EspañolIn the August 10 issue of The Economist, an article titled “Abenomics, Zoning Out” points out the case of Shenzhen (China), the most well-known and successful special economic zone. Shenzhen used to be a small town north of Hong Kong, based mainly on agriculture and fishing activities, until Deng Xiapoing, leader of the Chinese Communist Party, decided in 1979 to use it as a tester for a free market economy. Shenzhen grew rapidly until it became a huge industrial metropolis.

The Economist also mentions how Japan has used special economic zones to try out ideas that may sometimes be too radical for the rest of the country. Current Prime Minister Shinzo Abe has centered his plan for economic recovery around these zones, with two main objectives in mind: to create centers as attractive for companies and employees as London or New York; and to make them into competitiveness centers with no conventional regulations and more incentives for investments.

The special zones are known in Honduras as Economic Development and Employment Zones (ZEDEs in Spanish), akin to city states and charter territories and trade zones that have existed for years. Examples can be found in the Antilles and Indian trade routes, and the territories at the end of them. There are hundreds of them in the United States and many other developed countries.

But the main question is: why in Honduras? Do we actually need changes? The answer is positive, and urgent. We can make arguments for the opposition saying that the idea has not been well presented or explained — that we are not accustomed to investigating and reading of it. However, when the issue was discussed in the media, everyone called himself an expert; no one claimed otherwise. This resulted in an ill-informed population and many missed opportunities.

It is said that we should introduce the necessary changes all over the country and not just within the ZEDE. However, the targeted strategy has achieved legislative approval in Honduras, as well as in Japan, due to the fact that it is politically easier to evaluate the reforms in special areas where specific regulatory frameworks are justified, and where laws and codes are adapted to the specific geographic conditions and natural resources that can be found in that zone.

For instance, an area in the country with facilities for the provision of port services (and complementary activities) does not equal a region with forestry and abundant minerals located in the center of the country with poor road infrastructure.

In addition to the regulatory framework, it is necessary to establish competitiveness as a policy from the start, which is crucial for a ZEDE in its first years, in terms of attracting investors and generating the adequate investment and execution pace to achieve economic development. Some factors that play a part in this policy are a good system of property rights management, a quick mechanism of conflict resolution, low transaction costs, better infrastructure, and more security.

Together, these elements facilitate economic development with equity. In order to provide the efficient public services — fast and low-cost — that external investments require, it is also important to establish a civil service that can guarantee stable conditions for the public employee. That means an environment in which experience and knowledge can be accumulated in order to be translated into a sensible public administration.

It is a sensitive subject, given that the last 33 years have proved that our political organizations are not able to provide a good administration that obstructs corruption and administrative inefficiency.

There have not been proposals attacking this issue up-front. However, the ZEDEs offer alternative solutions, tailor-made in Honduras, for this problem. As pointed out by the Japanese prime minister, a special zone can be useful to evaluate some ideas that will help afterwards to apply transformations in an entire country, as it was the case with Shenzhen.

A ZEDE is an option to be tested and adopted in regions clearly defined by their geographic characteristics and particular natural and human resources, solutions that can be exemplary for the rest of the country.

This article first appeared in El Heraldo.

Translated by Marcela Estrada.