Opportunities and Challenges of the Industrial Park Development in Ethiopia. Lessons from Bole Lemi and Hawassa Industrial Park


Master's Thesis, 2019

116 Pages, Grade: Very Good


Excerpt


Table of Contents

Acknowledgments

Abbreviations and Acronyms

List of Tables

List of Figures

Abstract

CHAPTER ONE
INTRODUCTIONS
1.1. Background of the Study
1.2. Statement of the Problem
1.3. Objectives of the Study
1.4. Significance of the Study
1.5. Scope of the Study
1.6. Limitation of the Study
1.7. Definition of Terms
1.8. Organization of the Thesis

CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1. Definitions and Concepts of Industrial Park
2.1.1. Benefits of IPs
2.1.2. Evolution of Industrial Park Development: Global Scenario
2.1.3. Industrial Park Development in Ethiopia
2.2. Theoretical Framework
2.3. Empirical Literature

CHAPTER THREE
RESEARCH METHODOLOGY
3.1. Research Approach and Design
3.2. The Study Sample
3.3. Data Sources and Data Collection Tools
3.3.1. Document Review
3.3.2. Key Informant Interview (KII)
3.3.3. Focus Group Discussion (FGD)
3.4. Data Analysis Procedure

CHAPTER FOUR
RESULT AND DISCUSSION
4.1. Introduction
4.2. The Experience of IDP in Africa
4.3. Description of Studied IPs in Ethiopia
4.3.1. Bole Lemi Industrial Park
4.3.2. Hawassa Industrial Park
4.4. Opportunities of Industrial Park Development in Ethiopia
4.4.1. Government and Employees Related Opportunities
4.5. Challenges of IPD in Ethiopia
4.5.1. Theoretical and Practical Challenges
4.6. Lessons Learned From and To Ethiopia
4.6.1. What other Countries Can Learn from Ethiopia?
4.6.2. What Ethiopia Can Learn From other Countries?

CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
5.1. Conclusion
5.2. Recommendations

References

APPENDICIES

Acknowledgments

First and foremost glory be to the Almighty God for His blessing.

My sincerest thanks and deepest appreciation goes to my advisor Dr. Getahun Fenta for his encouragement, support and guidance. His earnest comments guided me to improve the quality of work. It is true that this study would not have been realized without the support of him.

It would like to extend my gratitude to Likyelesh Abay, Industrial Parks Promotion Director at EIPDC; Engidu Tsegaye, Customer Service Senior Export at Bole Lemi IP; Yodit Wolde, Investment Expert at EIC, Belante Tebikew, Vice-CEO at Hawassa IP and managers and employees of Bole Lemi and Hawassa IPs.

Gemechu Fufa, Tigist Ayalew, Derib W/yohannis, Yesehak Abreham, Belayneh Zeleke, Kifleyesus Abebe and friends and co-worker, please accept my appreciation for your support.

Last but not least, a boundless gratitude is due to my wife Meron Berhanu. I was blessed to have a spouse like her all the time I needed.

Abbreviations and Acronyms

Abbildung in dieser Leseprobe nicht enthalten

List of Tables

Table 4.1: Overview of African zone programs by decade of launch

Table 4.2: Level Employees' Skills in Bole Lemi and Hawassa IPs

Table 4.3: Amount of Export Earning from Bole Lemi Industrial Park

Table 4.4: Amount of Export Earning from Hawassa Industrial Park

Table 4.5: Rank that Indicates the Market Size and Good Market Efficiency of the Countries Source

Table 4.6: Time and Cost of Trading across Borders in Ethiopia Relative to other Countries

Table 4.7: Employees' Turnover at Bole Lemi Industrial Park

Table 4.8: Labor Market Efficiency Rank

Table 4.9: Households relocated from Bole Lemi Industrial Park

Table 4.10: Changes in Living Standard of Households in Area of BLIP

List of Figures

Plate 4.1: Bole Lemi Industrial Park

Plate 4.2: Hawassa Industrial Park

Abstract

The introduction of industrial park development in Ethiopia is currently a topical issue. Both the Government and private developers are working on the development of industrial parks in different part of the country and some of them have started operation while the others are waiting for their completion. The main objective of this study is to exploring the experiences of industrial park developments in African countries, focusing on identifying main opportunities and challenges and lessons from and to Ethiopia. Both primary and secondary data sources were used. Documents, key informant interview and focused group discussion were among the main data collection instruments used to examine and show industrial development practices in the continent and Ethiopia's Bole Lemi and Hawassa industrial parks in particular. Officials and experts from Ethiopian Industrial Parks Development Corporation and Ethiopian Investment Commission, human resource managers from nine different companies, industrial park managers and employees of manufacturing enterprises have responded the interview questions; households who are evicted due to industrial parks constructions have also participated in the focused group discussion and different documents reviewed. Data have been interpreted through theoretical basis, basic standard, conception and comparative approach. The findings of the study indicated that the industrial park development across the continent varies in terms periods of establishment, opportunities and challenges witnessed in specific countries. Embarking on industrial park development, Ethiopia has attracted foreign direct investment, generated revenue, staged technology and skill transfer and created ample jobs. It offered investors incentive packages, cheap labor and access to market with its attractive investment and legal framework. The challenges in Ethiopian IPs are identified as high labor turnover, inadequacy of infrastructure facilities, poor trade logistics and customs procedures, lack of access to foreign exchanges and weak linkages of IPs with local economy. It also lacks strong coordination among actors in the sector, experience and shortage of raw materials. It is also tested by lack of peace and stability. Thus, at this level of their performance, industrial parks have little impact on the country's economy. While Ethiopia carries on expansion of industrial park development and industrializations, it needs to consider building industrial culture and discipline, set a minimum wage, establish market chain and strategically identify industry locations. Ethiopia should also be vigilant on peace and stability issues.

Keywords : Industrial park, opportunities, challenges, foreign direct investment, employment, technology and skill transfer, Ethiopia

CHAPTER ONE

INTRODUCTIONS

1.1. Background of the Study

Industrial park development has been an important topic of development thinking after WWII. At times, it has been celebrated, challenged, and even discredited, but it has never been absent from the successive intellectual and policy debates on economic change (Farole, 2011). Today, after decades of intellectual debate, there is wide consensus among economists that indus­trialization is the single most important driver of structural change. The two concepts are indeed closely linked in that: (a) structural transformation is the phenomenon whereby a society's resources are moved from the sectors where they yield little economic benefits to those where the payoffs are the highest—and (b) this occurs through industrialization (Prihodko et al., 2007). Indeed, prosperity is achieved in any country only when a country's resources (human, natural, and capital) are shifted from subsistence and informal activities into high-productivity activities (Pakdeenurit & Suthikarnnarunai, 2014).

Industrial parks (IPs) or Export Processing Zones (EPZs) normally are established with the aim of achieving one or more of the following four policy objectives including to attract foreign direct investment (FDI), to serve as “pressure valves” to alleviate large-scale unemployment, in support of a wider economic reform strategy and as experimental laboratories for the application of new policies and approaches (FIAS, 2008). In achieving these objectives, industrial parks have had a mixed record of success. Anecdotal evidence turns up many examples of investments in zone infrastructure resulting in “white elephants,” or parks that largely have resulted in an industry taking advantage of tax breaks without producing substantial employment or export earnings. Empirical studies show that many industrial parks (IPs) or Special Economic Zones (SEZs) have been successful in generating exports and employment, and come out marginally positive in cost-benefit assessments (Jayanthakumaran 2003; Mongé-Gonzalez et al., 2005). Many economists, however, still view industrial parks as a second- or even third-best solution to competitiveness, whose success is restricted to specific conditions over a limited time frame (Newman & Page, 2017). Concerns also have been raised that industrial parks, by and large, have failed to extend benefits outside their enclaves or to contribute to upgrading of skills and the production base (Zeng, 2015).

Earlier attempts by African countries to industrialize were mostly unsuccessful and economic production remains largely agrarian, subsistence and portrays limited value addition (Elhiraika & Mbate, 2014). As a result, manufacturing has either stagnated or declined over time. The share of manufacturing in Africa's GDP has remained at around 13% between 1980 and 2010, compared to 31% in East Asia, where labor-intensive industrialization has induced high growth and addressed challenges to job creation, poverty and inequality (ECA & AUC, 2013).

Apart from Mauritius, Tunisia and Egypt, the performance of the IPs program in Africa has been inadequate. Senegal, Nigeria, Togo and Cameroon were among the first countries in Africa to establish the export processing zones (EPZs) but their performance was so poor that they were abandoned for sometimes (Chabari, 2000). Problems ranging from infrastructural inadequacy to opposition by trade unions in African countries such as Malawi, Mozambique, Namibia and South Africa deterred the operationalization of the concept. Poor planning, unstable development strategies and inconsistent policies have had their toll on the IPD programs in Liberia and the Republic of Congo (Chabari, 2000).

Ethiopia has embarked on a transformational journey of becoming a low middle-income carbon­neutral economy by 2025. To attain this goal, Ethiopia needs to sustain the high growth episodes that have been observed over the last decade by deepening structural change in its economy. The Second Growth and Transformational Plan (GTP II) (2015/16-2019/20) envisages an emergence in the form of desirable outcomes of structural transformation in a relatively shorter period of time as in the case of South East Asian countries (FDRE, 2010). This is to be achieved by shifting economic activities from low productivity to high productivity sectors, especially in to the manufacturing sector. The pursuit for industrialization is the most viable option for ensuring structural transformation (Zeng, 2015).To this effect, the Government has adopted a policy that focuses on the development of the manufacturing sector through the use of industrial parks to attract FDI and to support small and medium enterprises. But with services and agricultural sectors contributing almost 90 percent of GDP, the GTP has not been able to accelerate structural transformation. At the same time, the share of the manufacturing sector in GDP remained just above 4 percent of GDP for most of the past decade. Furthermore, Ethiopia has not made significant progress in pulling labor out of agriculture into more productive and industrial jobs. The share of employment in the manufacturing sector has changed only slightly and is virtually unchanged since 1999 at below 5 percent of total employment (World Bank Group, 2015).

The previous and current GTPs have been underpinned by efforts to transform the country from an agricultural based economy into a manufacturing hub. To this end, the government has focused on infrastructure development such as transport and energy facilities, investments in health and education, urban and rural development and creating industrial clusters. Further, the government is investing in and subsidizing the creation of industrial parks (Bezu & Holden, 2014).

Industrial parks are one of the most important factors supporting positive economy development with high economy turnover and high employment by attracting investment in the manufacturing sector (Farole, 2011). The federal government of Ethiopia has taken industrial park development as a strategy to attract investment in the manufacturing sector and accelerate the growth and development of the manufacturing sector. The growth and development of the manufacturing sector is expected to propel economic growth resulting from creation of more job opportunities, generation of foreign currency through export diversification, which is currently dependent on the agriculture (Arkebe, 2018). Thus, industrial parks development is adopted as a strategy in Ethiopia to realize the ambitious development plan of industrialization on the manufacturing and agro-processing industries, and thereby accelerate economic transformation through attracting domestic and foreign direct investment (Alebel et al., 2017). In Ethiopia, two typesof industrial parks are under development: large, medium and light scale industrial parks1 on the one hand and integrated agro-industrial parks2 on the other hand (UNIDO, 2017).

These include the Hawassa Industrial Park, the largest in sub-Sahara Africa, opened in mid-2016 and centered on the export of textiles and garments. There are also the Kombolacha and Mekelle industrial parks, opened in early 2017 and built at an estimated cost of USD 250 million. In January 2017, the government issued contracts worth USD 650 million to Chinese contractors to build three more industrial parks. These heavy investments in industrial parks demonstrate not only the government's ambition to reorient the economy, but also its inclination to developmental approaches and central dirigisme - resulting in a level of economic growth hardly imaginable a decade or two ago (Lie & Berouk, 2018 ). In general, according to EIC, Ethiopia has planned to increase the number of its industrial parks to 15 on June, 2018 as part of its effort to boost manufacturing and export. Ethiopia's aim in building more industrial parks is to contribute to 20 percent of Ethiopia's GDP and 50 percent of the export volume by 2025 (Zelalem, 2018). Given, the current plan of expanding industrial parks in Ethiopia and many other African countries, it is believed that IPs would help revamp and sustain the manufacturing sector. This, therefore, necessitated an examination of whether the industrial parks in Ethiopia possess their attainable objectives.

The purpose of this study is to review the experiences and processes of industrial park development programs in selected African countries in comparison to the development of industrial park development in Ethiopia. The study looks in to the potential opportunities and challenges of industrial park development in Ethiopia.

1.2. Statement of the Problem

There are various arguments towards industrial park development programs. While the historical success of economic zones in some Asian countries like Korea and Taiwan supports the arguments of that zones could be the first best option for economic liberalization and accelerated industrialization, there are substantial grounds for considering them, in their traditional form as second-best like China or even irrelevant in most countries like in SSA today (Bayisa, 2016). Industrial parks are controversial as they are popular. At their best, they align infrastructure provision and agglomeration economies to jolt industrial growth. At their worst, they fail to generate the required skill and investment; sit empty or simply do not get built; eroding the tax base; increase land speculation and loss of agricultural land; delivering hand-outs to favored firms; funneling spending to favored districts; cause environmental degradations, etc. (Saleman & Jordan, 2013; Zeng, 2015).

In Kenya, IPs/EPZs have had limited success in terms of achieving the predicted goals that led to their establishment. A study by Chabari (2000) shows that employment creation has been low compared to the anticipated levels, transfer of technology has been deterred by the quest for quick profit by foreign investors and that no significant spinoffs have accrued to Kenyans from the operations of the EPZs. Backward linkages have not developed significantly since investors tend source for raw materials in foreign markets. Thus, while the EPZs are desirable, they have had little impact on the country's economy (Chabari, 2000). Another study by Emmanuel (2016) on Zambia's multi-facility economic zones (MFEZs)3 and their manufacturing value chains indicates that between 1964-2013 Zambia's manufacturing zones were facing low levels of advanced and lower human capital (skills) threshold in local firms. This study was conducted while most of zones and parks were under construction while others were on paper, except Chambishi MFEZ was in its infancy stage (Emmanuel, 2016).

Ethiopia has joined its African counterparts very recently in IPDs with the same objectives. The country is pushing the program forward and has even began generating a substantial benefits from its few zones in operation, especially in terms of creating employment opportunity, FDI attraction, export promotion, etc. The prime functions of the development of industrial parks are to generating FDI, increase value added exporting and gain hard currency. As developing country, Ethiopia, the planned objectives of IPs are very crucial. But, these objectives do not give much emphasis to encourage the larger local markets and domestic investors (Zeng, 2015).

In spite of many clear advantages of industrial parks, researchers come-up with some limitations of IPs. One concern with IPs is that their use can restrict investment only to the most promising enterprises and thereby deprive other potential investments. An IP to be successful, it has to provide optimum locational advantages to the firms which serve its purpose or pay for it unless its occupants are well located. When location errors are made there is sometimes no provision for investing in such facilities and then the question may arise whether additional residential housing should be constructed or the park allowed incurring the risk of failure (Humphery, 2000).

A study by Selam (2017) on Eastern Industry Zone shows that industrial park has contributed economically in terms of generating job opportunities to the local people, capital investment to the country and the role of tax generation. Non-economic aspects of its contribution include technology and skill transfer and cultural integration while the park is facing inefficient of workers, shortage of raw materials, delay on the logistic service, communication barriers, lack of enough training, organizational problem and imbalance of share of work, shortage of foreign exchange and government bureaucracy. Here, since the study is based on single Chinese owned IP, it does not give pictures of public industrial parks (Selam, 2017). Another Study by Bayisa (2016) conducted on the prospects and challenges of industrial zone in Ethiopia shows that industrial park programs in Ethiopia are mainly inspired by preferential trade regimes like AGOA and EBA. This makes their sustainability uncertain after their expiration, though the country did not generate much benefit from these initiatives relative to other African countries like Kenya (Bayisa, 2016).

Since the narratives and practices of industrial park development program in Ethiopia is a recent phenomenon much study is needed. This research is thus aimed at filling the knowledge gap on the performance of IPs by examining the current practice of industrial park development made by selected African countries as well as assessing the opportunities, challenges and indicating important lessons from and to Ethiopia on the performance of IP developments.

1.3. Objectives of the Study

The general objective of this study is to review the practice of IPDs in Africa and identify the potential opportunities and challenges of IPD programs in Ethiopia.

Specifically, the objectives of the study are to:

- Review the practice of industrial park development programs in selected African countries.
- Examine the opportunities of industrial park development in Ethiopia.
- Identify the challenges of industrial park development in Ethiopia.

1.4. Significance of the Study

By picturing the experiences of IPD programs in selected African countries and assessing the challenges and opportunities of IPD in Ethiopia, this study is expected to have theoretical as well as practical contributions. Since the concept of industrial park development is relatively a recent process, the available literatures are few in this area. This study is an attempt to fill this gap by providing a more comprehensive assessment of the challenges and opportunities of this program. Theoretically, it illuminates the existing knowledge and scholarly debate in the area both in Africa and beyond, and thereby helping developing economies like Ethiopia in attempting to design an appropriate industrial park development strategy for a transformative industrial base.

The findings of the study have also practical significances for the academia, policy makers, industrial park developers and operators as well as the private sector within or outside the parks. Since the study focuses on the analysis of the contributions and challenges of IPD program in Ethiopia and the experience of other African countries in this area, it is hoped that it will provide policy-makers with vital information on the operations, politics and impact of the program. The Government has expressed concern at the slow rate of industrial growth in this country, and has declared its intention to achieve a newly industrialized country status by the year 2020 according to set on GTP II. Generally, the study has a potential to fill research gaps in the area and could be an important input for future action: for both government and the private sector in Ethiopia.

1.5. Scope of the Study

The coverage of this study contains the experience of African countries industrial park development program. The review sub-chapter includes the practice respective national IP institutional and policy framework as well as an overview of existing IPs, IPs under development and IPs in early planning stages. The case study analysis focuses on opportunities and challenges faced in fully operational manufacturing enterprises located at Bole Lemi and Hawassa Industrial Parks in Ethiopia. The study does not aim at to provide a final and conclusive verdict regarding Bole Lemi and Hawassa IPs' success and failure.This is only be possible when the manufacturing enterprises are fully operational at least a few years.

1.6. Limitation of the Study

A major problem encountered during this research was the reluctance by some of the industrial park enterprises to provide information. Most of them claimed that IPs firms are private companies and that most of their information is classified. The researcher was unable to get access to meet and make group discussion on the impact of the construction of HIP on households moved from their land. This made the data collection from those households' side was quite tedious. During the revision of African countries' experience on the development of IPs, there is lack of systematic, data-driven analysis on the performance of economic zones and limited up-to-date analysis of the policies and practices that determine that performance. This problem is mainly serious in Africa where industrial parks have short life history, research and development in the area are lacking, and zones are seldom sustainable. Finding secondary data providing documents were difficult on some of the issues in some of selected countries. Finding secondary data from non-English speakers were also difficult. There are limitations associated with its very nature and the specific situations in Ethiopia. In addition, the limited time frame and financial capital have restricted the flexibility of the study in terms of depth and width. The restricted entry policy of resident companies and the absence of concerned personnel to provide information are also considered as shortcomings in enriching this study further.

1.7. Definition of Terms

Industrial Parks: are geographically or judicially bounded areas in which free trade, including free trade import of intermediate goods, is permitted provided that all goods produced within the parks are exported (Lettice, 2003).

Manufacturing Enterprises: are manufacturing firms located in industrial parks and provided different forms of incentives from government (Zeng, 2015).

Opportunities: are any socio-economic advantages happened following the presence of industrial parks.

Challenges: are negative impacts of industrial parks on host country.

Backward linkage: This occurs when technology is transferred from a multinational company buying an input to a domestic company selling the input. It can also occur when a multinational company inside the zone subcontracts some of its production to a domestic company outside the zone. For example, many of the garment producers in Mauritius upgraded their products and processes by increasing their operational scale through investing in Madagascar (Engman et al., 2007).

Forward Linkage: This occurs when the transfer of technology is from a product supplier to the buyer (Engman et al., 2007).

1.8. Organization of the Thesis

The study is divided into five chapters. Chapter 1introduces the study, presents the statement of the problem, objectives and significance of the study.Chapter2presents review of related literature on industrial parks development; explore the theoretical framework and empirical studies. Then, chapter 3presents the parts of the research methodology. In this part, the approach and design of the study, data sources and collection tools and data analysis and presentation technique are included. Chapter 4deals with the experiences of five African countries' industrial park development programs; explain the opportunities and challenges that are observed in Ethiopian industrial parks: specifically at Bole Lemi Phase and Hawassa Industrial Parks. Additionally, points out lessons that Ethiopia can learn from other African countries and what other countries learn from Ethiopia on area of IPD. Finally, Chapter 5givesa conclusion and recommendations based on the findings of the study.

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1. Definitions and Concepts of Industrial Park

Industrial parks are widely known by different names in the literature: Industrial zone (IZ), Special Economic Zones (SEZ), Eco-Industrial Parks (EIP), Free Trade Zones (FTZ), Technology Parks (TP), Industry Clusters (IC), Export Processing Zones (EPZ), Economic Development Zones (EDZs), Innovation Districts (ID), Industrial Estates (IE), etc. (UNIDO, (2015); OECD, 2009; Zeng(2015); Farole, (2011).

Various definitions of industrial park (also known as industrial estate, industrial zone, trading estate) have been made, but the definition which was made by United Nations Industrial Development Organization (UNIDO) is considered to be the broadest definition. According to UNIDO's definition of industrial park, or the more general term special economic zone (SEZ), as: ... A tract of land developed and subdivided into plots according to a comprehensive plan with or without built-up (advance) factories, sometimes with common facilities and sometimes without them, for the use of a group of industrialist (UNIDO, 2015).

In addition to hard infrastructure, industrial parks often grant preferential policy and have different institutional arrangements from the rest of the country - such as tax and tariff reductions, looser labor regulations, different sets of laws, and many other practices that provide convenience and lower the costs of doing business. While the policy instruments that governments could use to lure investment are well-known, there are a few strategies they could follow to increase the chances of success: targeting international firms, targeting group business, incentivizing first movers and adopting a step-by-step approach (Zeng, 2017).

The diversity of names and forms of industrial parks is the result of several factors, including: (1) the need to differentiate among types of parks that display very real differences in form and function; (2) differences in economic terminology among countries; (3) zone promoters' desire to differentiate their product from those of the competition; and (4) the consequences of multiple translations. Definitions vary across countries and institutions, and evolve continuously as new types of parks or zones are developed and older types disappear or are adapted. Any attempt at a comprehensive definition of industry parks must be sufficiently broad to encompass the bewildering array of past, present, and future parks, and yet sufficiently precise to exclude those that do not display the essential structural features that make a zone or park (Farole, 2011).

To address this confusion, scholars in the area are attempting to introduce their own generic name that is taught to represent all kinds of parks or SEZ. Accordingly, Wang (2013) uses ‘economic development zones'; Farole (2011) adapts ‘special economic zones'; Guangwen, (2003) uses ‘free trade zones'; OECD (2010) prefers ‘economic zones'; World Bank, (WB ,2015) uses ‘industrial parks'; Amirahmadi and Wu (1995) and UNCTAD (2015) adapt ‘export processing zones'. Yet, there is no consensus reached among scholars on the generic term itself, though the name ‘special economic zones' and ‘industrial parks' are repeatedly used in the literature. Despite their confusing nomenclature and definitional crisis, industrial parks typically possess the following structural features to be an industrial park across time and space (Wang, 2013; Zeng, 2015; Falore, 2011):Parks/zones are formally delimited portions of the national territory defined by specific regulatory regimes (operating rules) that are more liberal and administratively efficient than those prevailing in the rest of the national territory; parks/zones have a single management or administration. The administration of the regime usually requires a dedicated governance structure, centralized or decentralized, to ensure the benefit of investors through efficient management of the regimes; parks/zones have a separate customs area (duty­free benefits) and streamlined procedures. They are usually provided with special incentives (land, roads, electricity, water, telecommunications, transportation, etc.) to attract investment and facilitate the activities of firms operating within the park/zone; most parks/zones aim to attract FDI in order to increase exports, and enhance competitiveness; zones offer primary benefits for investors physically within the park/zone, though local small and medium enterprises are expected to benefit from linkage spillovers.

The variation in their nomenclature, for instance, Guangwen (2003) has identified about 66 different terminologies, reflects the linguistic preferences of developing and implementing authorities as much as functional differences between different kinds of parks/zones pertinent to their establishing objectives, geographical location, and country's politics, among others (Pakdeenurit et al., 2014; Falore, 2011). However, the multiplicity of terminologies is highly confusing and created difficulty in defining, classifying and understanding the concept (OECD, 2010; Guangwen, 2003).

On the other hand, according to Scheepers (2012), the term “Industrial Park or Special Economic Zone” is used generically to describe different forms of parks/zones (including Industrial Zones, Special Economic Zones, Free Trade Zones, and Export Processing Zones etc.) that vary in size and scope and operate under different incentive regimes. What follows will be an outline of the different types of SEZ and their functions.

The first one is Free Trade Zones (FTZ). They are the most commonly used SEZ, and are generally characterized as being a geographically fenced-in, tax-free area that provides warehousing, storage and distribution facilities for trade, shipping and import/export operations in a reduced regulatory environment, meaning they generally have less stringent customs controls and sometimes fewer labor and environmental controls. These zones generally focus on the tangible operations of international trade. Because many SEZs attract labor-intensive manufacturing such as assembly-oriented production of apparel, textiles and electrical goods, FTZs are a very popular type of SEZ or IP.

The next one is Export Processing Zones (EPZ). They are similar to FTZs in that they encompass land estates that focus on foreign exports, but they differ in that they do not provide the same degree of tax benefits or regulatory leniency. Instead, they provide a functional advantage to investors seeking to capitalize on the economies of scale that a geographic concentration of production and manufacturing can bring to a trade region. If they are successful, these zones are beneficial to a host country because the host country does not have to provide reduced tariffs or regulations but it still benefits from increased trade to the region.

What follow next are Enterprise Zones. They are so unique is that, apart from providing manufacturing or production benefits like other SEZs, they also provide the benefits of local, centralized development efforts. They are generally created by national or local governments to revitalize or gentrify a distressed urban area. These zones use greater economic incentives than EPZs, like tax incentives and financial assistance, to revitalize an area by bringing trade into the zone that will spur organic, localized development and improve local inhabitants' quality of life. The implementation of enterprise zones follows the philosophy that improvement of a region's industry and trade begins at the individual neighborhood level.

The fourth types of SEZ are Single Factories. It is special type of SEZ that are not geographically delineated, meaning they do not have to locate within a designated zone to receive trade incentives. This type of SEZ focuses on the development of a particular type of factory or enterprise, regardless of location. When a country decides to establish a single factory as a type of SEZ, its intention is to create specialization in a specific industry. A country that desires to create an export concentration in a specific industry would use a single-factory model to promote trade and growth in just that industry, giving each factory specializing in that trade economic incentives.

The fifth categories are Free ports and they are also typically expansive zones that encompass many different goods and service-related trade activities such as travel, tourism and retail sales. Because of the variation of products and services available to a Freeport, they are generally regarded as being more integrated with the host country's economy. Movements of these imported goods from the Freeport to a non-free trade area in the country are subject to import duties.

Specialized Zones comes in sixth place and they have been established to promote highly technical products and services unique to an industry. Many of these zones focus on the production and promotion of science and technology parks, petrochemical zones, highly technical logistics and warehousing sites, and airport-based economies.

Industrial Parks are facilities (buildings) that are set aside for production and business services in order to attract new businesses by providing integrated infrastructure in one location and localized environmental controls that are specific to the needs of an industrial area.

Spatial development corridors connect two or more economic nodes by means of transportation networks, and accommodate various economic activities along the corridors. The final one is industrial development zone that used to build industrial estate linked to an airport or sea port that leverages domestic and foreign fixed direct investments in value-added and export-oriented manufacturing industries and services.

In the context of Ethiopia, the Industrial Park Proclamation No. 886/2015 states that:

"Industrial Park" means an area with distinct boundary designated by the appropriate organ to develop comprehensive, integrated, multiple or selected functions of industries, based on a planned fulfillment of infrastructure and various services such as road, electric power and water, one stop shop and have special incentive schemes, with a broad view to achieving planned and systematic, development of industries, mitigation of impacts of pollution on environment and human being and development of urban centers, and includes special economic zones, technology parks, export processing zones, agro-processing zone, free trade zones and the like designated by the Investment Board;

Based on the criteria mentioned above, industrial parks are commonly known as ring-fenced enclaves (geographically delimited and planned areas) that enjoy special regulatory, incentive, administrative and institutional frame works and other facilities that are different from the rest of the economy (OECD, 2009; Zeng, 2015) and require deliberate government effort: feasibility study, master planning, construction, and management follow-up (Kim, 2015). The development of industrial parks, therefore, reflect the government's policy intent and evolves as the industrial policy regime changes, and normally operates under more liberal economic laws than those typically prevailing in the country (Kim, 2015; Zeng, 2015).Unlike natural areas where firms are located predominantly to be closer to suppliers and markets (like the footwear cluster in Merkato and handloom cluster in Shero-meda in Addis Ababa) (Merima, 2012).

2.1.1. Benefits of IPs

FIAS (2008), Farole (2011) and Zeng (2012) as cited in UNDP(2015) the main identified benefits of IPs are first to create employment that can be achieved by SEZs/IPs in particular through the attraction of labor intensive manufacturing and service industries; second, export growth and economic diversification that can be facilitated through SEZs/IPs by attracting investment and establishing links to global supply chains; the third benefit is earning foreign exchange that helps to meet a country's import needs and provide the government with necessary resources for development through the attraction of foreign investors and the export of goods to other countries; additionally, IPs help for knowledge transfer through on-the-job or broader training opportunities for employees. Local companies often benefit from hiring workers previously employed by mostly international SEZ/IP companies.

In addition, the parks allow countries to focus resources in particular sectors or areas, to soften the economic shocks of opening an economy and adjusting to a more competitive and global world. In some cases, they even provide islands of stability and relative transparency even in the most extreme conditions in today‘s world of uncertainties. The modern parks focus on providing an internationally competitive business environment with improved infrastructure, s ophisticated communications, reliable power, dependable transport, well educated workers and efficient customs operations (Das Geeta).

In general, successful IPs lead to two main types of benefits: “static” economic benefits such as employment generation, export growth, government revenues, and foreign exchange earnings; and the “dynamic” economic benefits such as skills upgrading, technology transfer and innovation, economic diversification, productivity enhancement of local firms (Zeng, 2010).

2.1.2. Evolution of Industrial Park Development: Global Scenario

The concept of industrial park can be dated back to the industrial revolution of the 18 century during which countries formed industrial areas to facilitate industrialization. Using industrial parks for economic reason has a long history and dated back as early as 1704 in Gibraltar, 1819 in Singapore, and 1848 in Hong Kong (Zhang & Ilheu, 2014). These early parks were geared towards facilitating external trade through the use of free ports; an area where the commodities were circulated (imported, exported, exchanged) free of local prohibitions, taxation, duties, and excises (Farole, 2011). However, in its modern design and aim, in the United States of America, ‘the first modern industrial zone' is said to have been established in Brooklyn, New York's Navy Yard in 1937. Then, the concept initially expanded after the Second World War with the establishment of the ‘first modern industrial zone' in Ireland (Shannon) in 1959 and immediately followed by Puerto Rico (Mayaguez-the first modern zone in developing countries) in 1962 (Zhang & Ilheu, 2014, Guangwen, 2003; Stein, 2009). In Latin America, zone development began in the mid-1960s, first in Colombia, which established the Barranquilla Zone in 1964; then in the Dominican Republic, which established the La Romana Zone in 1965. Zone development in Asia began shortly thereafter, starting with Kandla in India In 1965 and Kaohsiung in Taipei in 1965. These soon were followed by Masan in South Korea in 1970, Sungei Way in Malaysia in 1971, Bataan in the Philippines in 1972, and Tanjun Priok in Indonesia in 1973 (Prihodko et al., 2007). The United Nations Economic and Social Council (ECOSOC) adopted a resolution suggesting that the improvement of port, customs, and trade zone facilities in developing countries. Thereafter, zones made their way to Africa, beginning in Mauritius, Ghana, Liberia, and Senegal (World Bank, 2015). These industrial areas vary depending on their causes of formation, and can be developed in to industrial parks. Depending on sources of resources and types of operation, Industrial Parks can be classified into endogenous resource park, exogenous, and or mixed Resources Park. Industrial Parks are also characterized by park specialization, ownership and land. For example, Science and Technology Park, Research Park, Eco-industrial Park or Export Processing Zone and Free Trade Zone are types of specialized parks. In terms of ownership, parks may be developed and/or operated by public, private or public - private partnership. Parks may also characterized by land on which they developed. They could be ‘brown', if the park is established on existing but disused facilities of former companies or ‘green' if developed in a new area. Eco-industrial parks are a variant of industrial parks that strive for high environmental, economic, and social benefits, as well as business support (Alebel et al., 2017).

Regardless of the importance of industry in the context of sustainable development in Africa, the continent lags behind than other developing regions in industrial performance. Africa's share of world manufacturing output also declined from 0.9% to a still lower figure of 0.8% over the two decades spanning 1980 - 2001. Within Africa, the distribution of manufacturing activity is highly skewed with just one country, South Africa, accounting for 27.3% of total manufacturing value added (MVA) in Sub-Saharan Africa and registering significant growth over the past two decades. Thus, for most countries of Africa there has been a loss in their share of global manufacturing output (UNECC & UNIDO, 2006).

I. Evolution in Europe

In Turkey Free zones were created and still function on the basis of Act on Free Zones No. 3218 promulgated yet in 1985 and effective as of 1987. At the time, there emerged two pioneer special economic zones in the country: in Mercina and Antalya. In 1999, they were joined by the Aegean free economic zone in Izmir and a free entrepreneurship zone in Istanbul, which located in the precincts of the Ataturk International Airport. The Turkish zones are encouraged to take a maximum advantage of the country's geographic position, its proximity both to the Middle East and Eastern and Western European markets (Prihodko S. et al. 2007).

In the national economic zones it is allowed to carry out business activities of any kind, including storing, production, packaging and banking. The zones boast necessary infrastructure, office, production and warehouse facilities, which can be rented at privileged rates. The currently existing 21 zones have become home to 3,401 corporations, including 652 foreign ones. In 2003, the volume of export and import operations via the zones grew at 49.6% and reached USD 16,608.66 million, or equivalent to 14% of the nation's foreign trade turn_ over. Practically all the zones reported growth in this regard, with the trade turnover in 6 of them being over USD 1 billion (Prihodko S. et al. 2007).

The basis for creating SEZs in Poland is the Act of 20 October 1994 on Special Economic Zone which indicates the rules and manner of establishing and managing of economic zones as well as conducting business activity on the territory of the special economic zone. Fourteen Special Economic Zones have been created in Poland, EURO-PARK Mielec, Suwalki, Kotowice, Legnica, Lodz, Walbrzych, Kamienna Gora, Kostrzyn-slubice, Slupsk, Starachowice, Tarnobrzeg, Pomernian, Warmi-Mazury and the Krakow Technology Park. One may only hope that the long turn undertaking, which was the introduction of Special Economic Zones, will encourage new investors to locate their activity in the special economic zones. Poland enacted a SEZ law in 1995 for creating SEZs. The main objectives of developing the zones were creating employment, protecting the environment, applying new technology, managing natural resources, and taking advantage of unused assets and infrastructure. In order to attract investors, preferential tax treatment applies to the SEZs. An important aspect of the policy is to provide incentives based on type of investment, quantum of investment, the number of local people employed and trained. Some of the prominent industries established in the zones are automotive and automobile parts, aircraft manufacturing, metal working, food processing and beverages. At present, there are 17 special zones in Poland covering an area of around 6338.92 hectare. The zones currently employ more than 14,000 people. Euro Park Mielec, spread over 575 hectare, is one of the successfully operating SEZ in Poland (Olga, 2010).

II. Evolution in Americas

The US continues to be a great source for manufacturing investment for economic zones. Foreign Trade Zones have played a pivotal role in establishing the US as a hub for manufacturing, though the globalization, current dynamics and changed comparative advantage have resulted in large scale outsourcing of low value manufacturing processes to China and other South East Asian economies. The FTZs in the US are designated sites where special customs procedures apply and the FTZ Board, established in 1934, provides license and regulates FTZs. These zones have helped in creating level playing field in terms of the business costs associated with imports and customs clearance. The FTZs have also assisted state and local officials to develop their economies by attracting foreign commerce. Further, by helping the US companies improve their international competitiveness, FTZs have helped these companies to retain local business and encourage the development of additional jobs (Prihodko et al., 2007).

The Columbia was the first to have the concept of SEZs in Latin America and it came in 1964. There are twelve Free Zones in Colombia, in Bogotá, Quindío, Arauca, Cucuta, Palmaseca, Buenaventura, Rionegro, Malambo, Santa Marta, Barranquilla, Cartagena and La Candelaria (Valle).Tax incentives include customs duties and VAT exemptions on goods and services brought into the zones. Foreign exchange benefits refer to the right to exchange, hold or negotiate foreign currency; the right to open domestic or foreign bank accounts in a foreign currency and a number of procedural facilities. Colombia has nearly five million square meters of modern facilities designated as free zones. Four currently depressed border cities (Buenaventura, Valledupar, Ipiales and Cucuta) have been granted special status to encourage further exports and export-oriented investment. Other incentives include a special labor regime and/or investment in disaster areas ("Paez Law", in much of Cauca and Huila and the "Quimbaya Law" in the coffee-growing region that was struck by the 1999 earthquake) (Prihodko et al., 2007).

III. Evolution in Asia

China has undoubtedly been one of the most successful users of SEZs. The first China zones were established in 1978 in order to experiment with introduction of controlled capitalism to a centrally planned economy and particular, to introduce a liberal trade and investment regime into an economy that had been largely closed to the outside world since 1949. Initially, four zones were established in the country's coastal areas (three in Guangdong Provence and one in Fujian), but the number of zones increased during the 1980s and 1990s to include a large numbers of towns and regions, some located in the interior of the country. China's SEZ strategy proved very successfully as the country became the world's largest exporter of manufactured items and the leading destination for FDI in the developing world. Today, the country has over 200 zones of various types, sizes and industrial focus. In addition, the country has started expanding its model to other parts of the globe with investments in economic cooperation zones' in countries in Africa and other parts of the developing world (Baissac, 2011). In Pakistan every district headquarters of Pakistan has an industrial estate or area having infrastructures and offers incentives of various natures: Punjab has 26 industrial estates, whilst Sindh, Baluchistan and KP, have 30, 7 and 12 industrial states, respectively. Some of these are successful whilst others are unsuccessful because they are established in remote areas lacking necessary skilled work force or basic amenities for workers. Some big cities also have industrial clusters on the basis of their strength in skilled workforce, raw materials, supporting institutions and deep historical links with local and global supply chains. These clusters include: sports and surgical clusters in the city of Sialkot, textiles cluster in Faisalabad, fan cluster in Gujrat, and engineering cluster in Gujranwala to name the major ones. Existing SEZs in Pakistan include: (i) Karachi Export Processing Zone (Karachi); (ii) Risalpur Export Processing Zone (Risalpur); (iii) Sialkot Export Processing Zone (Sialkot); (iv) Gujranwala Export Processing Zone, Gujranwala; (v) Khairpur Special Economic Zone, Khairpur; (vi) Rashkai Economic Zone (Rashakai-Mardan, M1); (vii) Gadoon Economic Zone (Gadoon Amazai Swabi); and (viii) Hathar Economic Zone (Hathar-Haripur).In addition, there are some Industrial Parks in Pakistan: Rachna Industrial Park (Lahore), Marble City (Lahore), and Textile City (Port Qasim). Some of the newly established industrial estates are: Value Addition City (Sheikhupura-Faisalabad Expressway), M3 Industrial City (Faisalabad), and Quaid-e-Azam Apparel Park (M-2 Lahore) (Mohmood, 2018).

Malaysia's first zone opened near Penang Island in 1972. It rapidly became attractive to American firms in particular, which set up manufacturing operations in labor-intensive electronics assembly. Malaysia's EPZs grew by 13.3 percent a year in the 1970s. By 1995, more than 400 firms were operating in the zones. By 2003, the zones employed nearly a million workers, a third of them in increasingly high-tech segments of the electrical and electronics industries. Malaysia's electronics industry, created virtually from nothing within the zones, now produces about 10 percent of the world's semiconductors (Farole, 2011).

IV. The Middle East and North Africa

The Middle East and North Africa initially chose to develop FTZs, whose numbers also expanded in the 1960s and 1970s, notably in Egypt, Israel, Jordan, and Syria. Tunisia chose the EPZ route. In the 1990s, manufacturing activities took root, notably through the Qualified Industrial Zone program. Although most countries in Sub-Saharan Africa did not develop zone programs until the 1990s, several launched earlier initiatives, including Liberia (1970), Mauritius (1971), and Senegal (1974). By the mid-1980s, EPZs were a fixture of trade and industrial policy in all regions of the world (Farole, 2011).

There is generally an increasing trend in the development of Free Economic Zones (FEZs) in the MENA region. In the MENA OECD Stock-taking report (2005), there were 48 functioning zones in the MENA region as a whole; with three MENA countries having no FEZs at that time namely Oman, Qatar and Saudi Arabia. According to the 2008 update, there were about 73 FEZs. The numbers have almost doubled from 48 in 2005 to around 89 FEZs in 2009 (OECD, 2009). Moreover, the three countries that did not have FEZs had set up concrete plans for their development. Saudi Arabia had set ambitious goals for creating six “special economic cities” with a goal of creating 1.3 million employment opportunities by 2020. The King Abdullah Economic City is slated to be built first and will be divided into six areas: the sea port, industrial zone, central business district, resort district, education zone and residential zone. Oman has developed a specialized zone called the Knowledge Oasis Muscat focusing on technology development. Qatar plans to construct a development called Energy City Qatar with the aim of attracting leaders in oil and gas production, to be opened in 2010 (MENA-OECD, 2009).

In line with the rest of the world, the emerging trend in FEZ development approach in MENA is a movement away from the classical development of “free trade zone” and “export processing zones” towards “special economic zones” and “specialized zones.” In 2005, the stock of export processing zones (EPZs), special economic zones (SEZs), and specialized zones (SZs) in MENA4 numbered 38, 2 and 8 respectively; in 2009 the numbers are as follows: 37 FZs, 10 SEZs and 37 SZs (MENA-OECD, 2009).

2.1.3. Industrial Park Development in Ethiopia

Among SSA countries, Ethiopia's recent economic growth is impressive and its GDP grew on average by 11% between 2004 and 2014 (WB, 2015). In order to sustain the growth momentum and further induce industrialization, the government of Ethiopia has introduced the ambitious Growth and Transformation Plan (GTP1 and 2) since 2010/11, in which the private sector has been considered as an engine of economic growth and transformation that primarily intends in reducing poverty and bringing structural transformation through building an economy with modern and productive agricultural and industrial sectors that would ultimately take the country to a middle-income status by 2025 (Zeng, 2015; MoI, 2015). The GTP aims at addressing a range of developmental indicators, while also providing a framework for industrialization for SEZs through a policy matrix (GTP/PM) targeting specific sectors. The GTP is complimented by Ethiopian Investment Policy, which is supported by accompanying legislation the Investment Proclamation No.769/2012, which among other things ensures the protection of private property rights and the repatriation of capital and profit (COMCEC, 2017).

Industrial Parks were also identified as way in which to address two of the most frequently mentioned grievances by investors in Ethiopia, namely access to land and government being seen as an impediment to investment (in terms of red tape and policy and regulation). The industrial park program was therefore seen as a tool to address these impediments to further investment by liberalizing business conditions in a limited geographical area.5

i. IP Legislations and Regulations

The Industrial Park program is governed by the Industrial Parks Proclamation No. 886/2015, as well as the Investment Proclamation No.769/2012. Industrial Parks Proclamation aims to: attract private sector participation in manufacturing; enhance competitiveness of economy; and creates jobs and achieve sustainable economic development.6

The Act also lays out the rights and obligations of the developer, including to: develop the industrial park land; operate the industrial park; provide services to investors in the industrial park as the operator; sub-lease the land; rent or sell immovable assets to investors; make space available for the one-stop-shop facility; take advantage of incentives offered; aim to link local businesses into supply chain; replace expatriates with Ethiopians by training local employees; and can sub-lease development or operation of site (EFDR Proclamation No. 886/2015). The regulations lay out in more detail timeframes of these obligations. A number of the new regulations are currently being gazetted and await finalization (given the Industrial Park program is fairly new in Ethiopia). Some of the regulations have, however been signed off.7 Industrial Park Proclamation No. 886/2015 states issues related to land, incentives (both fiscal and non­fiscal) to manufacturers and developers (FDRE Proclamation No., 886/2015).

ii. Organizational and Administrative Profile

Ethiopian Industrial Parks Development Corporation (IPDC) was established in 2014, as a public enterprise. One of its primary mandates is to develop and administer Ethiopia's industrial parks, including leasing developed land as well leasing and transferring, through sale, of buildings on the industrial park land. The IPDC works with the Ethiopian Investment commission and the Ethiopian Revenue and Custom Authority to provide a one-stop-shop service for investors investing in the designated industrial parks.8

2.2. Theoretical Framework

A theoretical framework helps us to organize what we know about a stated question or issue at any particular time. The desire for development in the Third World countries is so great that various theoretical models have been advanced in an attempt to explain the available development options. The study of IPD is multidimensional, encompassing a cross section of several social science disciplines including economics, political science, sociology and geography. The complexity of such a study implies that it cannot be limited to a single analytical tool. Yet, as Baissac (1996) points out, the application of several analytical methods may on the other hand be contradicting. To give this study a wide scope as possible five theoretical models will be applied: the neo-classical approach (orthodox view), the political economy approach, the heterodox approach, the value chain approach and the agglomeration economic approach.

i. The Neo-Classical Approach (Orthodox View)

The mainstream neo-classical economic theory views SEZs as enclaves offering open and freer trade policies set up with the objective of promoting trade. According to this theory, free trade is the best policy for a government to adopt. If freer trade is not politically viable at economy wide level, some welfare gains may be obtained from SEZs. SEZs therefore represent, at best, a second best policy. When viewed from a static perspective, SEZs are distortionary trade instruments which distort trade patterns, promote unfair competition between domestic and SEZ firms, drain government revenue and if the rest of the economy is not liberalized they remain production enclaves with little economic contribution. It argues that SEZs are useful only when the government uses them as a vehicle to further economy wide reforms. Their role should therefore be transitory, facilitating the transition of an economy from import substituting regime to free trade regime with minimal government intervention. They lose their significance as countries implement country wide systemic trade, macroeconomic and exchange rate reforms (Madani, 1999).

This theory provides the basis for much of the criticism against SEZs. However, if freer trade is the most compelling need for a SEZ, it could be captured by the duty drawback regime. Furthermore, the recent experience shows that a considerable increase in the number SEZs across the world has followed the adoption of trade and economic reforms in the rest of the economy rather than preceded them. They are not a vehicle to promote liberalization but are an outcome of the liberalized regime (Aggarwal, 2010).

ii. The Political Economy Approach

The political economy perspective of SEZs is based on the ‘public choice theory' (Buchanan & Tullock, 1962), which draws on the interest group theories of Political Science and neo classical economic school. It argues that the provision of government intervention promotes lobbying by interest groups for rent seeking. The main lesson of this perspective which supports the principle of “minimalist government” is that the best strategy for all countries and in all situations is to liberalize - and not do much else. Free trade with minimal state intervention alone can ensure growth. The objective of the SEZ policy according to this approach is to generate rents to a few capitalists by facilitating land acquisition and offering tax incentives at the cost of the rest of the population, which in turn would reduce the overall welfare. The argument of the self-regulating market and minimalist government has increasingly been criticized. Evidence suggests that governments in industrialized countries manipulated and maintained rents to create a capitalist class and after the creation of this class used these rents to encourage them to invest in growth (Khan, 2004).

iii. The Heterodox Approach

While the neo classical theories are obsessed with markets and argue that limiting the role of the state is essential in minimizing market distortions, the heterodox school advocates a mix of state­market interactions, in which developmental governments play a significant role in investment, human capital formation, acquisition of technology, institution setting, and the promotion of policy and institutional reforms (Chang 2002). This school draws on the endogenous growth literature and development state and new institutional theories. It argues that domestic firms lack the technical, marketing and managerial know-how and that they seldom have access to international distribution channels. In this scenario, SEZs are a government sponsored initiative to fill this gap. By offering enabling investment climate in terms of efficient infrastructure, good governance, simpler regulatory system, availability of skilled labor, tax incentives, finance and strategic locations, SEZs are instrumental in attracting FDI. FDI is accompanied with better technologies and managerial skills. The presence of foreign firms generates important spill-overs also. These spill-overs include labor and management on-the-job training and learning by doing, copying and demonstration effects, and impact on the rate and level of human capital formation in host countries. SEZs can thus offer unique scope for learning, improvement and transformation. The presence of foreign firms generates important spill-overs also. These spill­overs include labor and management on-the-job training and learning by doing, copying and demonstration effects, and impact on the rate and level of human capital formation in host

countries. SEZs can thus offer unique scope for learning, improvement and transformation through the flow of technology, knowledge and skills (Milberg, 2007).However, in this framework also SEZs are a second best policy. If the country's investment climate is significantly improved, SEZs become superfluous in the economy's performance.

With the proliferation of a variety of SEZs across the world (including in developed countries) there is need to extend theoretical foundations of setting up of SEZs for a better understanding of their contribution to the economic growth. We propose to extend the heterodox approach to embrace the agglomeration economies approach and the global value chain approach to explain the rationale and contribution of SEZs.

iv. The Global Value Chain Approach

The globalization process is accompanied by a rapid emergence of “global value chains”. The whole process of producing goods, from raw materials to finished product, has increasingly been “sliced” and each process is carried out wherever the necessary skills and materials are available at competitive cost either through off-shore outsourcing and/or offshoring. Offshore-outsourcing is associated with subcontracting parts/ the whole production process to specialized firms abroad while off-shoring is the shift of production to a new location in another country through affiliates (FDI). However, market forces alone cannot ensure an effective integration of domestic firms in these chains. Global competition is so intense that unless deliberate policies are introduced to foster a favorable investment climate in terms of improved infrastructure, simplified rules and harmonized processes, regulations, and standards with domestic, bilateral, regional, and international practices, domestic firms in these economies are not usually able to avail the opportunities to integrate within these networks. By offering an enabling business climate SEZs facilitate the host country's insertion into global value chains through both off-shoring and offshore-outsourcing. SEZs thus promote both domestic and foreign direct investment. While there is huge literature on the role of FDI in technology transfers and diffusion in developing countries, the contribution of outsourcing to domestic firms in technological upgrading of the economy has attracted little attention. Outsourcing has opened large export opportunities for domestic firms in developing countries. Integration within the global value chains is an important way for strengthening the competitiveness of developing-country firms and building their productive capacities. Entry into global chains promises access to a global pool of new technologies, skills, capital, and markets, upgradation of firm-level capabilities from ‘learning' through technology diffusion and exposure to international best practice systems of corporate governance. As a consequence of ‘learning by exporting' they can target more sophisticated market segments such as design, marketing and branding. They can thus be a potential tool for promotion and diversification of export activities. One clear example of upgrading among developing country producers is the case of East Asian SEZ producers. According to Gereffi (1999) they moved from (a) assembly of imported inputs, to (b) increased local production and sourcing, to (c) the design of products sold under the brands of other firms, and finally to (d) the sale of own branded merchandise in internal and external markets. In all these countries SEZs were used as a tool to attract offshore-outsourcing and off-shoring activities (Gereffi, 1999).

v. Agglomeration Economies Approach

This approach does not focus on augmenting resources for growth but on reallocating them for promoting productivity and innovativeness. The advantages of agglomerations are rooted in: knowledge spillovers, resource sharing, and labor pooling. Within this framework, SEZs are government promoted clusters of outward oriented firms, both foreign and local, and are set up to exploit the benefits arising from global value chains. These clusters enhance productivity and spur innovation by bringing together technology, information, specialized talent, competing companies, supporting companies, academic institutions, and other organizations (Kim and Zhang, 2008). The success of clusters depends on four sets of factors: firms' structure, strategy and rivalry, demand conditions, factor conditions and supporting industries. The more intense and developed the interaction of these factors, the greater is productivity enhancing effects of these clusters. The more outward oriented these clusters are the greater is the intensity of interaction between these factors. Openness to international markets imparts dynamism to clusters and enhances factor specialization and upgrading, and demand sophistication. Furthermore, clustering of foreign and local firms amplify these benefits further. A close proximity of foreign and domestic firms, and the accompanying linkages, facilitate technology spillovers and demonstration effects. ‘Local producers learn a great deal from global buyers about how to improve their production processes, attain consistent and high quality and increase the speed of response' (Kim and Zhang, 2008). Evidence suggests that geographically concentrated foreign companies are better than dispersed foreign companies in transferring

[...]


1 The difference between large, medium and small scale industries is found in three areas. It depends on the number of employees each industry employs, the amount of capital that was invested and the availability of the company's assets.

2 An integrated agro-industrial park (IAIP) is a geographic cluster of independent firms grouped together to gain economies of scale and positive externalities by sharing infrastructure and taking advantage of opportunities for bulk purchasing and selling, training courses and extension services. (UNIDO, 2017)

3 In Zambia, the industrial zones are called Multi-Facility Economic Zones (MFEZs)

4 The Middle East and North Africa is a regional encompassing approximately 22 countries in the Middle East and North Africa.

5 Interview conducted with IDPC Industrial Park Promotion Manager on January 22, 2019.

6 Interview conducted with IDPC Promotion and Marketing Director on January 22, 2019.

7 Interview conducted with EIC Investment Expert on January 29, 2019.

8 Interview conducted with IDPC Industrial Park Promotion Manager on January 22, 2019.

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Title
Opportunities and Challenges of the Industrial Park Development in Ethiopia. Lessons from Bole Lemi and Hawassa Industrial Park
Grade
Very Good
Author
Year
2019
Pages
116
Catalog Number
V1183656
ISBN (eBook)
9783346611871
ISBN (Book)
9783346611888
Language
English
Keywords
opportunities, challenges, industrial, park, development, ethiopia, lessons, bole, lemi, hawassa
Quote paper
Yechalework Aynalem (Author), 2019, Opportunities and Challenges of the Industrial Park Development in Ethiopia. Lessons from Bole Lemi and Hawassa Industrial Park, Munich, GRIN Verlag, https://www.grin.com/document/1183656

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