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Industrial Parks – a century of route to industrialization

Industrial Parks – a century of route to industrialization

By Bereket Gebru 09-29-17

Industrial parks have been around for a hundred years. In a 1999 article entitled “industrial parks: principles and practice,” Caj O. Falcke (Ph.D.) stated that the concept of industrial parks emerged in the industrialized countries some one hundred years ago, primarily as a means to promote and manage industrial development and to provide cost effective infrastructure and communal services. The article states that it took rather long to really catch on but since the 1970s, there has been a massive increase in the number of parks worldwide, especially in the newly industrializing countries. The article states that there were more than 12,000 industrial parks in the world in 1999.

Mere numbers aside, one of the recent success stories that integrated the construction of industrial parks into its adoption of market economy is China. So, let’s take a closer look at the role of industrial parks in China’s rise to the summit of manufacturing in the world.

 

The Spring 2008 Prologis Research Bulletin states in an article entitled “China’s Special Economic Zones and National Industrial Parks – Door Openers to Economic Reform:” “China launched its “Open Door” reforms in 1978 as a social experiment — one that was designed to test the efficacy of market-oriented economic reforms, but to do so within a controlled environment.”

 

The article goes on to explain that China’s economic transformation was based on the classic prescription for growth — thrift, investment, industriousness, foreign trade, shifting from agriculture to manufacturing, and a willingness to adopt the best practices employed by the world’s industrial leaders. It then claims that the four Asian “tigers” — South Korea, Hong Kong, Taiwan, and Singapore — all used variations of this recipe to create their own economic successes. Accordingly, concludes the article: “the People’s Republic of China (PRC) has designed and implemented its own export-led growth strategy, with special emphases on open cities and industrial parks.”

 

Just another third world country marred with poverty and the rest of the package it is accompanied by, China decided to test market-oriented approaches to growth in 1978. Special economic zones and industrial parks were adopted as the laboratories in which these tests would be conducted with the experiment spanning only a few selected sectors. Accordingly, China designated four coastal cities as “open” cities and made them into Special Economic Zones (SEZs) enjoying special financial, investment and trade privileges. These SEZs were patterned after the Export Processing Zones that the four Asian “tigers” had employed so successfully in their export-led growth strategies.

 

The two primary objectives, as stated by the article, were to attract foreign investment into these zones and to kick start an export-led national growth strategy. The article states: “these experimental reforms proved to be immensely successful, and the State Council subsequently opened up additional cities and established national industrial parks.” The one thing to note here is that a Special Economic Zone (SEZ) is a whole city or province with special financial, investment and trade privileges while an industrial park is situated on a smaller plot of land earmarked for industry and export trade development along with special tax and other privileges.

 

With the success in the use of these SEZs and industrial parks, China attained its goals of creating jobs, improving the standard of living and promoting the transfer of technological knowledge. The 2008 bulletin stated above states that since 2008 when the three decades of the reforms was celebrated, China’s merchandise exports increased 125-fold and its real gross domestic product (GDP) has grown nearly 15-fold. In 2007 only, China’s incremental growth in real GDP actually exceeded its entire real GDP in 1979. It goes on to state that the 54 industrial parks accounted for substantial shares of China’s overall economic activity contributing for 5% of total GDP, 15% of exports, and 22% of total DFI inflows. The article then concludes: “China’s SEZs and national industrial parks have proven to be powerful engines of growth and deserve much of the credit for China’s economic transformation.”

 

The implications of these industrial parks for employment creation, provision of housing and physical infrastructure, education, health and social services, and pollution control are staggering. The 1999 article entitled “industrial parks: principles and practice,” Caj O. Falcke (Ph.D.) states:

The Large-scale manufacturing is likely to play only a limited role in providing employment. Small and medium-sized firms in manufacturing, services and trade, as well as micro-enterprises will provide most of the jobs. Many of these will benefit greatly in exactly the just mentioned critical variables for success by locating inside a well functioning industrial park: outsourcing based on efficient division of labor is facilitated, economies of scale may be achieved, and productivity thereby is enhanced. By clustering into industrial parks, small, medium and even large enterprises can take advantage of public infrastructures, economize on construction and common facilities, and gain access to nearby skilled labor markets, research and educational facilities and other critical inputs. 

The challenge for the public as well as the private sector, the article contends, is to facilitate the creation and maintenance of industrial parks that are competitive in the global as well as the local context. It states: “the ability to compete in national, regional as well as international markets is the hallmark of successful private enterprise and the paramount prerequisite for sustainable economic development.”

Access to major markets, infrastructure, cheap skilled labour and incentive packages, the 2008 bulletin states, are among the main reasons that determine the competitiveness of industrial parks in global system.

As has been indicated above, China adopted the use of industrial parks from the successful experience of the Asian “tigers.” Similarly, Ethiopia has embarked on the construction of ten industrial parks throughout the country after considering their importance in the industrialization of states. In analysis of the international competitiveness of these industrial parks, let’s gauge the facts against each of the above stated criteria.

Situated in the horn of Africa, Ethiopia provides an easy access to Africa, the Middle East, Asia and Europe. Therefore, it is ideally located to access the major markets in the world. As a rapidly growing economy, the state of infrastructure in the country is changing tremendously for the better with the industrial parks enjoying the best of electrical, water, telecommunications, roads and other facilities Ethiopia has to offer.

The 2008 bulletin states:

“When China first cracked its “Open Door” in 1980, it lacked virtually all of the basics (not to mention amenities) that modern business enterprises simply take for granted. Absent were such basics as a transparent legal system, the concept of private property, labor markets, banks, foreign exchange markets, and modern infrastructure — including highways, telecommunication facilities, water, waste management, comfortable living quarters, and energy-supply systems. Only the most intrepid foreign enterprises were willing to venture into this uninviting setting.”

 

With more than a dozen years of rapid development under its belt, it is plausible to think that the present day Ethiopia offers more of some of the amenities stated above than the China of nearly forty years back. Although there have been improvements in infrastructure and work procedures, Ethiopia still needs to keep things rolling to catch up with the demands of today’s businesses. By providing businesses with a fully furnished space to operate from, Ethiopia’s industrial parks compensate for the shortcomings in infrastructure through their connection with ports and close proximity to airports, railway stations, dry ports and universities.

 

The other point to consider is the availability of cheap skilled labour force. Set to hit the 100 million mark, the majority of the population of Ethiopia is young. This group constitutes the working section of society. Therefore, there is a large availability of labour in the country. Considering the nearly universal enrollment in primary schools and considerable expansion of education at all levels in the past couple of decades, the labour force is more educated than it used to be. The salary level of Ethiopian workers is also generally low. Therefore, Ethiopia has skilled labour that can be employed for low price.

The other gauge deals with incentive packages. Accordingly, Ethiopia provides manufacturers with:

  • Zero tax
  • Exempted from income tax up to 8 - 10 years
  • Exempted from duties & other taxes on imports of machinery, construction materials, spare parts, raw materials & vehicles
  • One-stop-shop for government services
  • Land lease term: 60-80 years at zero charge for factories & residential quarters

Developers also enjoy equally beneficial incentives that include:

  • Exempted from income tax up to 15 years (outside Addis Ababa)
  • Exempted from duties & vehicles
  • Provision of essential infrastructure, including dedicated power substations
  • Land lease term: 60-80 years at zero charge with sub-lease rights

As has been shown above, industrial parks played vital roles in the industrialization and development of the Asian tigers and the leading manufacturer in the world – China. Considering Ethiopia ticks all the rights boxes to host competitive industrial parks at the world stage, the successful completion of the projects would speed up the transformation of the economy to an export-led industrialized one.    

 


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