Free zones and freeports are now becoming more popular among policy-makers — even in developed economies such as the UK, where the government is working on a plan to establish eight freeports.

Elsewhere, Oman opened its Duqm Free Zone in 2022, while Saudi Arabia has also been developing SEZs and is expected to launch five in total. The Kurdistan Regional Government (KRG) in Iraq is also drafting an SEZ programme to promote import substitution.

Interest in the establishment of new free zones sits atop a bumper year for new investments into existing ones. According to fDi Markets data, 2021 saw record greenfield investments into free zones, with 442 projects tracked worth an estimated $46.6bn — only a slight rise in project numbers but a significant increase in capital investment compared with pre-pandemic levels. Between 2010 and 2019, the average number of projects tracked in global free zones stood at roughly 334, while estimated capital expenditure (capex) averaged out at $21.6bn.

With the need for scale in new technologies such as green hydrogen, free zones offer clear incentives: large plots of land, cost competitiveness and access to logistics infrastructure. Even with a question mark hovering over the tax incentives SEZs can offer (their core tool) in the light of the G20’s proposed global corporate minimum tax rate, their position as a linchpin in global economic development remains intact.

Three of the top five projects, accounting for some $19bn, were in photovoltiac (PV) cell production, green hydrogen and green ammonia, in line with the post-pandemic appetite for clean energy. Perhaps unsurprisingly, the other two mega projects tracked in 2021 were in semiconductor manufacturing, reflecting the need for chips in all industries of the future.

Momentum for investment activity into free zones has slowed in 2022 (January to June) where only 173 projects have been recorded at an estimated value of $14.9bn — a drop of almost a fifth from the 212 projects tracked over the same period in 2021 (which also had a combined estimated capex of almost double, at $28.5bn).

Innovation continues

It is clear, however, that even if the enthusiasm of 2021 has waned, the areas ripe for innovation and expansion identified during the pandemic have persisted into 2022. Renewable energy maintains its crown as the leading sector for greenfield projects tracked in global free zones, with $10.8bn invested so far (until June), followed by software and IT services, metals and financial services. 

This year, the biggest project recorded so far was India-based ReNew Power Ventures’s $8bn investment in July in a green hydrogen plant in Egypt’s Suez Canal Economic Zone, bringing the total foreign investment in renewable energy into free zones to $18.8bn between January and July 2022.

Free zones are also keen to put ESG and sustainability at the heart of their agenda and operating methods. In May, the UN Conference on Trade and Development (Unctad) teamed up with free zone associations representing more than 7000 SEZs to create the Global Alliance of Special Economic Zones. This looks to push these zones to modernise further, and maximise their contribution to the UN Sustainable Development Goals (SDGs).

In a statement, Unctad secretary-general Rebeca Grynspan said the UN’s goals provide “an opportunity for special economic zones to attract investment by putting SDGs at the forefront of their value proposition”, and that these new sustainable zones “are contributing to more inclusive, resilient and sustainable economies in the countries where they operate”.

As free zones adapt to the demands of the 2020s, they need other attributes, and over the course of 2021, entries to this year’s ranking have rolled out initiatives to help smaller companies weather the uncertainty of the pandemic, to burnish their own digitisation and ESG credentials, and promote international trade.    

fDi’s Global Free Zones of the Year 2022 highlights not only best practices from across the world, but also the consolidated trends that are shaping the future direction of free zones, set against fresh challenges and exciting opportunities for investors and governments alike.