Special Economic Zone (SEZ) Meaning

Special Economic Zone (SEZ)

A special economic zone (SEZ) is an area in a country that is subject to different economic regulations than other regions within the same country. When a country or individual conducts business in an SEZ, there are typically additional economic advantages for them, including tax incentives and the opportunity to pay lower tariffs. Basically, SEZs are usually created in order to facilitate rapid economic growth in certain geographic regions. This economic growth is accomplished by leveraging tax incentives as a way of attracting foreign dollars and technological advancement.

SEZs may also increase export levels for the implementing country and other countries that supply it with intermediate products. However, there is a risk that countries may abuse the system and use it to retain protectionist barriers (in the form of taxes and fees). SEZs can also create a high level of bureaucracy due to their regulatory requirements. After all, this can have the effect of funneling money away from the system, making it less efficient.

While there are benefits for businesses, individuals, or entities operating within an SEZ, the macroeconomic and socioeconomic benefits for a country using an SEZ strategy are subject to debate. The first SEZs appeared in the late 1950s in industrialized countries. They were designed to attract foreign investment from multinational corporations. The first was in Shannon Airport in Clare, Ireland. In the 1970s, SEZs were also established in Latin American and East Asian countries. 

Another key point, free zones and entrepôts have been used for centuries to guarantee free storage and exchange along trade routes. Modern SEZs appeared from the late-1950s in industrial countries. The first was in Shannon Airport in Clare, Ireland. Some tax-free jurisdictions such as the Cayman Islands offer technology companies a way to keep their IP offshore in a Special Economic Zone (see Cayman Enterprise City). From the 1970s onward, zones providing labour-intensive manufacturing have been established, starting in Latin America and East Asia.

The first in China following the opening of China in 1979 by Deng Xiaoping was the Shenzhen Special Economic Zone, which encouraged foreign investment and simultaneously accelerated industrialization in this region. These zones attracted investment from multinational corporations. China continues to maintain Special Economic Zones and certain open coastal areas. 

Special Economic Zone In Indonesia

Indonesia is one of the countries that seeks to move the economy through the development of SEZ This area was formed to increase investment by preparing areas that have economic and geo-strategic advantages. So far, the Special Economic Zones (SEZ) have been developed in various regions in Indonesia, based on the demographic potential and accessibility of the region to global markets to attract more investment, manage industry, export-import and other economic activities with high-scale economic value and global competitiveness, and to create more quality jobs. Currently, there are 15 Special Economic Zones (SEZ) in Indonesia. Each of SEZs is developed for specific sectors. The existing SEZs are:

  • Tanjung Lesung SEZ in Banten Province, for tourism (already operating from February 2015)
  • Sei Mangkei SEZ in North Sumatera Pryearovince, for CPO and rubber industry, fertilizer industry, logistics, and tourism (already operating from December 2016).
  • Mandalika SEZ in West Nusa Tenggara Province, for tourism (already operating from September 2017).
  • Palu SEZ in Center of Sulawesi Province, for smelters, agro industry, and logistics (already operating from September 2017).
  • Tanjung Api-Api SEZ in South Sumatera Province, for Crude Palm Oil, rubber downstream industry, and petrochemical industry (already operating from June 2018).
  • Arun Lhokseumawe SEZ in Aceh Province, for oil and gas industry, petrochemical, agro industry, logistics, and paper industry (already operating from December 2018).
  • Galang Batang SEZ in Riau Island Province, for mineral processing industry, energy, and logistics (already operating from December 2018).
  • Tanjung Kelayang SEZ in Bangka Belitung Island Province, for tourism (already operating from March 2019).
  • Maloy Batuta SEZ in East Kalimantan Province, for CPO, wood, coal, and mineral industry (already operating from April 2019).
  • Bitung SEZ in North Sulawesi Province, for fishery and agro industry, and logistics (already operating from April 2019).
  • Morotai SEZ in Maluku Province, for tourism, manufacturing industry, and logistics (already operating from April 2019).
  • Sorong SEZ in West Papua Province, for tourism, industrial shipyards, fisheries processing industry, mining industry, and logistics (already operating from October 2019
  • Singhasari SEZ in East Java, for tourism, creative industry (under development).
  • Kendal SEZ in Central Java, for manufacturing industry, textile industry, logistic (under development).
  • Likupang SEZ in North Sulawesi, for tourism (under development).

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