Special Economic Zones in the OIC Region:
Learning from Experience
17
A notable example is in the case of the Kaesong Industrial Complex in North Korea which was
developed on the basis of an agreement between Hyundai Asan, a South Korean company which
initiated the SEZ project, and the government of North Korea for a total payment of 942 million
USD. It is estimated that during its operation the SEZ also generated 20-34 million USD per
annum for the state of North Korea and provided a significant source of foreign currency
accumulation. 15
2.6.6 Creating Clusters of Specialised Economic Activity
For many governments adopting SEZ strategies, a key consideration is how the country can
quickly develop clusters of industrial activity that will become specialised, internationally
differentiated and create high-value products and/or services. SEZ strategies and site selection
is sometimes targeted towards particular industry sectors where economic assessment suggests
that niche specialisms can be developed quickly. This can be linked to existing specialisation
within the country or to the availability of relevant feedstocks or rawmaterials inputs. In recent
strategies adopted by GCC member countries, for example, SEZ strategies have been developed
based in part on an attempt to create or deepen clusters of sector-specific activity. This is
considered to be a key determinant of both economic diversification (away from dependence on
hydrocarbons in this case) and improved international competitiveness.
2.6.7 Deepening and Extending Industry Value Chains
Linked to the above point, a primary objective underpinning many plans for SEZ development
is a sustained attempt to extend and deepen industry value chains. Again this is often pursued
where existing industrial activity provides a basis for moving further into downstream (and
sometimes upstream) value chain segments. Examples include several African and Asian
countries with significant activity in the clothing, textiles and apparel (CTA) sector. It is common
for these countries to have substantial activity and employment in one aspect of the value chain
which might include production of cotton feedstock, or alternatively garment assembly. Inmany
instances other aspects of the value chain including intermediate elements such as design or
spinning may be absent. The SEZ policy in these cases is often geared towards attracting
investors that can essentially ‘plug’ the value chain gap and create a deeper industry value chain
in-country. This is seen as facilitating greater resilience in the industrial system – it will become
reliant on activity outside of the country – as well as yielding higher values from production
processes.
Similar approaches are taken in countries with major commodities or mineral extraction
sectors. In this case SEZ policies are often targeted towards extending the process of minerals
15 Victor Cha, The Impossible State: North Korea: Past and Future (Harper Collins, 2013)