With the government focused on economic growth yet facing considerable fiscal headwinds, limiting their ability to cut company tax on a broader level, the set-up of focused special economic zones (SEZ's) could help not only to turbocharge our GDP growth, but also to provide targeted support to regions that have long struggled due to isolation and socio-economic deprivation.
Indeed the development of SEZ's can serve not only to drive GDP growth, but also to amortize and support the business cases for long overdue infrastructure improvements to better connect regions to main centers.
It's therefore pleasing to see politicians are now open to the concept, with murmurings underway about the potential that Marsden Point holds for the development of a special economic zone in the form or an energy precinct. The government should expand the scope of the zone beyond energy however, to include strategic sectors where New Zealand has or could develop a comparative advantage- I'll touch on these later.
So what could be the benefits of a special economic zone for kiwis?
Reviewing a practical example from Switzerland , the canton of Zug has managed to deliver an economy that contributes circa. NZD $40 Billion in GDP to the Swiss economy each year providing >100,000 jobs all within an urban zone of no more than 30 square kilometers (3,000 hectares) or a little larger than the current Greater Marsden Point area (including Ruakaka) in Northland.
Zug in Switzerland has achieved tremendous success through the following:
1) A low circa 12% company tax rate supported by generous tax credits for R&D.
2) Investment in world class infrastructure (including Road and Rail).
3) High quality education- ease of access to world class Universities with R&D facilities.
4) Proximity and strong connectivity to Zurich (Switzerland's largest commercial hub).
5) Political & Financial stability.
6) Implementation of a long-term development strategy (which isn't upended by changes in government).
7) Prioritization of high value industry clusters:
i) IT & Tech i.e. AI/Fintech, Robotics
ii) Life Sciences
iii) Consumer Goods (Food & Fibre)
iv) Financial Services
v) HQ's/Admin
Even if our zone/s were 1/2 the size of Zug, that's still a zone delivering NZD ~$20Bn GDP/year and >50,000 jobs.
And whilst we are considering a special economic zone in Marsden Point/Ruakaka, why not consider one in the south too, such as Dunedin?
So why Greater Marsden Point and/or Oamaru?
Key considerations in favour are as follows:
1) Access to a shipping port with ample growth capacity (Marsden Point includes Northport, Oamaru has Port Chalmers (109km away). Set up of 2 special economic zones could mean a zone in both the North and South to support commercial activities in both main islands)
2) A focus on infrastructure development in the area (i.e. Marsden Point- Energy: Solar farm, Geothermal Plant, 4 lane highway in construction, Railway upgrades)
3) Proximity to major cities - i.e. in a similar way that Zug is close to Zurich, Auckland could be accessed in <1h 30 with a four-lane highway or Medium Speed Rail from Marsden Point, and Oamaru is a short drive away from Dunedin, with both Auckland and Dunedin offering access to top universities.
4) Relating to Greater Marsden Point, there is a need to improve outcomes for Northlanders, including Maori, who would stand to benefit enormously in terms of economic opportunities to create, service and staff the Special Economic Zone.
5) Lower comparative earthquake risk in both regions and (relatively) amenable climates.
6) Availability of land for development (note the Greater Marsden Point special economic zone could be expanded south, subject to availability of suitable land)
Taking learnings from abroad, what are some key requirements (a non-exhaustive list):
1) Development of a "vision" supported by a comprehensive and holistic plan and corresponding proposals which include not only the incentives and conditions, but also details all the requisite infrastructure, urban and community planning requirements (Invite the local community, iwi, entrepreneurs and businesses, institutions, community organizations, to participate in developing proposals)
2) Canvassing of sectors, businesses, investors and entrepreneurs of interest globally, consulting on proposals and securing buy-in.
3) Community and iwi buy in- as per point 1) robust engagement and collaboration will be key, to take local communities and iwi on the journey, to ensure progress.
4) Canvassing global higher education institutions to support R&D and continuous learning- to assist in attracting the business sector, linking in with regional universities (i.e. Massey and University of Auckland in the North, Otago & Canterbury Universities in the South) along with global collaborations (i.e. Harvard, MIT, INSEAD, LSE UK, Stanford etc. to offer a holistic package to entice global companies to set up in NZ)
5) Multi-party-political consensus (there would need to be a broad-based consensus around policy, planning and execution to avoid project derailment in the event of a change of government)
What a Special Economic Zone should consider (a non-exhaustive list):
1) A long-term low company tax rate for all businesses that set-up in the designated Special Economic Zone (i.e. a 10% annual company tax rate or similar)
2) Businesses could contribute an infrastructure levy (which could be based on number of employees, size of operations in the economic zone)
3) Iwi and community collaboration- collaborating with local iwis, who also stand to benefit immensely from the development of a SEZ.
4) A targeted sector focus- prioritization could be given to high value sectors we want to encourage, broadening further beyond the initial discussion regarding set up of an energy precinct i.e.
i) IT/Tech (SAAS, Robotics, AI, Fintech etc.)
ii) Space Exploration/ Defence (i.e. Rocket Lab)
ii) High Value Consumer Goods
iii) Life Sciences/Pharma (i.e. Nutraceuticals and Cosmeceuticals)
iv) Financial Services
5) A holistic Infrastructure & Services Development and Delivery Plan (encompassing transportation, energy, education, health, recreation, water/sewage etc., and ancillary support services such as financial services & retail.)
Critically with New Zealand being a relatively safe-haven distanced from major geopolitical conflicts, we can offer international companies and investors a stable environment to invest in, numerous lifestyle benefits for employees and our local spirit of innovation to trial and iterate at a micro level before scaling globally.
We can focus on luring international administrative/HQ, research, innovation and design bases to New Zealand- global businesses do not necessarily need to bring their manufacturing down-under, noting the rise in global protectionism.
Some economists have argued we should look more broadly than targeted special economic zones, given overall, NZ is small anyway. Whilst they raise a valid point, we do however need to prove the model works on a micro scale first, especially given the fiscal challenges we currently face and with that the need to manage public and political apprehension regarding potential loss of tax revenues (at least initially in any case).
Once we have demonstrated the effectiveness of one or two special economic zones, we can then look to broaden favourable policy and planning reach from there.
Now however, we need to move beyond the talk, put the requisite policy and a clear strategic plan in place. Most importantly, we need to set the wheels in motion to move local SEZ's from concept to reality within an expedited timeframe.
In an era where global protectionism is on the rise, with strong competition for both talent and capital, the real question to ask regarding the set-up of highly incentivized special economic zones is- can we afford not to?
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