Papua New Guinea could attract significant investments and derive large revenues from a free trade zone, according to Tony Restall, President of the consultancy Development Services International. He says the necessary legislation is already in place.
Free trade zone advocate Tony Restall
A free trade zone (FTZ) is a geographic area where goods are generally not subject to customs duty and other incentives may be offered such as lower taxation.
The free zone history of PNG goes back to the year 2000 when the Free Zone Act was released through Parliament in its efforts to stimulate a secondary economic revenue stream.
The Act itself was no easy process to present to Government; nevertheless it was eventually released.
Although not a perfect document, if the supporting rules and regulations are activated it would enable the Free Trade Zone to become an effective investment tool attracting foreign direct investment (FDI) into the country.
Dubai
Anyone researching free zones will naturally be drawn to places such as Dubai in the United Arab Emirates as the modern version of a free zone economy.
Dubai’s FTZ has no personal or corporate income tax and allows 100 per cent business ownership and capital repatriation.
In the late 1970s the then ruler of Dubai, Sheikh Rashid al Maktoum, was concerned about the short-lived wealth created by an oil-based economy.
He was worried what would happen to his people when the oil ran out.
‘Last year the value of free trade revenues through Dubai exceeded US$500 Billion.’
He exploited an idea from neighbouring Sharjah (part of the United Arab Emirates) which was never implemented for fear of upsetting Abu Dhabi, the largest oil and gas producing Emirate and the largest contributor to the UAE Economy.
Dubai embarked on a two-pronged investment program. Many predicted it would end in failure.
The first step was the construction of the largest man-made port in the world: Jebel Ali, a 67 metre deep water port.
The Jebel Ali Free Trade Zone
Then, in 1985 the Jebel Ali free Zone was launched.
That was 33 years ago.
Last year the value of free trade revenues through Dubai exceeded US$500 Billion.
Lessons
How can the lessons learnt in Dubai be applied for the benefit of the PNG economy?
‘PNG could apply this formula and provide much needed foreign direct investment and employment.’
It is true that not all free zones have performed in such spectacular fashion.
Places not as well known, such as Sharjah, Ajman and Ras Al Khaimah all created free zones that have performed in less spectacular fashion.
But all have used the same basic formula to attract investors and are still generating large direct and indirect revenue streams.
Typically, a small free zone can generate US$100 million per year in administrative fees (office rentals and free zone licences).
PNG could apply this formula and provide much needed foreign direct investment and employment. But little has been done to use the legislation.
Locations could be established throughout the country, starting with the Port Moresby airport, sea port and CBD.
More far flung locations could also be used, provided it can be based on credible business logic.
— Tony Restall is President of the consultancy Development Services International.
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Thank you so much for information. My name is Mary Elizabeth Sipos, I zm a Strategist in my own right. I write a lot if Projects Formulatiin Documents, and I am currently in Manus. I am currently looking to engage into a Partnership with potential investors to invest into Tourism Industry with me and my people currently on Nakes block, at Salamei in Los Negros LLG. My people are victims of WW2 and are living in huge catchment areas with war remain relics etc..Some outskirts islands have been victims of waste dumping areas, which have lost these islands that were destroyed and ended up sinking into sea mass areas with few beach patching floating between shallow znd deep sea surroundings. Most of our family and community catchment areas are not far of the current “Lombrum Naval Base Upgrading Project Site.”
I could not agree more with Tony Restall’s opinion on FTZ as an important driver of economies of many countries all over the World. Three other lessons to add to convincing PNG about FTZs are stated below:
United Arab Emirates (UAE) economy has traditionally been based on oil production. The country took a bold decision to build Free Trade Zones and in first 9 months of 2018, the non-oil (FTZs activities) foreign trade earnings hit USD 330 billion according to UEA Federal Customs Authority.
China has the fastest growing economy in world at the present time and has the highest numbers of Special Economic Zones in the world. It currently has 12 special economic zones established within a short period of five years between 2013 and 2018.
Other countries in Southeast Asia including Cambodia, Myanmar, Laos, Vietnam, Philippines, Malaysia, Indonesia, Brunei, Thailand, and Singapore have established Special Economic Zones and have entered into Free Trade Agreements in 1992. These countries share a total population of 580 million, total GDP is worth USD1.5 trillion and the total trade is USD1.7 trillion per year.
PNG needs to make the move now in a more coordinated approach to commence the establishment of Economic Zones (including FTZs, SEZs, etc.) in strategic locations throughout the country which will deliver returns in short time to urgently support the country’s crawling economy.
I said coordinated approach because of current mushrooming of ideas and proposals on FTZs, SEZs, Industrial Parks, SER, etc, etc. in the country creating pressures to NEC to approve each and every proposals. In the meantime, FTZ Act 2000 has repealed and replaced by the ambiguous SEZ Authority Act 2019.
PNG NEED TO URGENTLY FORMULATE AND ADOPT A NATIONAL POLICY AND STRATEGIC PLAN FOR THE DEVELOPMENT OF ECONOMIC ZONES. It must engage international experts like Tony Restall to assist with the Policy and Strategic Plan.
A National Policy and Strategic Plan will provide the basis of establishing economic zones, hence minimize the creation of white elephants adding to current high deficit of the country’s economy.
Maran Nateleo
Principal Consultant
Arehi Consultants of Arehi Enterprise Ltd
P.O.Box 187, Aitape 553, Mobile: +675 73879283
Email: marannateleo804@gmail.com
The FTZ could bring FDI and generate employment. There is a good location that would attract FDI to develop an industrial zone. #PNG #AsiaPacific #Liam3279