Doing the freeport sums
Yesterday, the UK Chancellor, Rishi Sunak announced the winning bidders for new freeports. Eight bids were successful, with observers suggesting there may be more later. A quick review of the number of new jobs the bidders hope their freeports will create comes to a total just short of 200,000.
This is an interesting number considering that at the core of this policy is Mr. Sunak’s 2016 paper (The Free Ports Opportunity) which said "Free Ports could create as many as 86,000 jobs for the British economy if they were as successful as the US’ Foreign Trade Zone programme". So far fewer jobs than claimed by the winning bidders, and across the whole country, not just eight locations.
The Chancellor's numbers relied on comparisons with US Foreign-Trade Zones. This logic is flawed because in the US, major industries such as car manufacturing and oil refining take advantage of significant tariff inversions (where the customs duty on finished goods delivered to the domestic US market is much lower than the duty on the raw material inputs). Such tariff inversion anomalies are very limited in the UK.
Anyway, clearly the winning bidders are all naturally bullish and optimistic about the potential and have a range of interesting and innovative ideas they can now pursue. Let's hope that they are proved right and that the promised number of genuinely new jobs for the UK are created by these developments. But let's also be wary of the danger of dilution if many more locations are allowed to become freeports. At the end of the day what drives everything is not how many freeports there are, but how big the market is for them.
Hi Neil, I agree. We faced a similar situation in India, when government aggressively promoted massive SEZs projects. It is difficult to assess and estimate the incremental jobs created by such zones, as some of the projects which would have happened anyway (generic growth) are transferred to these zones to take tax benefits.
Transforming Businesses with Digital and Automation | Innovation | Strategy | Tactics - Views expressed here are my own
4 年Good points Neil. Without detailed analysis of the assumptions behind the bids, one could be inclined to say that the winning bids were probably those showing the greatest number of created jobs. By bidding up that number, they assured the license to operate, but there may be nothing in those licences to compel the winners to actually create as many permanent jobs as they promised, and whether they are actually net new jobs, not simply those transferred from outside of the zones into the zones.
Chairman - DSI Group Holdings - Free Zones & Economic Development
4 年Good observations Neil. Seems every reporter and interviewer latches on to 'Free Ports being Hubs for Money Laundering' - Clearly they haven't done their homework but 'Sensationalism' sells Media Attention. The Checks and Balances in place ensure that Money Laundering is considered a very important factor especially in all the Free Zones in the Middle East ( 23 just in Dubai). The UK has yet to establish the Free Port Law and Legislation and the Supporting Rules and Regulations - This is not a Five Minute Job. However, anyone trying to open a New Bank Account in the UK is certainly put through the wringer - My recent attempt to do so equated to a totally comical situation. We need a Utility Bill and Council Tax Bill with your name on it. 'Sorry' we cant accept cash into the Bank unless you have the am documents. Catch 22. Frustrating to the highest degree - "We have to avoid Money Laundering you know" - the Cashier in HSBC Told me. What about Free Port Companies involved in Trading ? The Banks are going to FREAK OUT !!!!!! The Central Bank of the UK and Ministry of Finance are going to have to issue 'Special Instructions' for Free Port Account Users - otherwise I can assure you the expected 'Exodus' of Free Port Investors will not ( Ever) Happen. Also, what about Visa Entry into the UK for Investors and Immigration Status for dependants ? I see another BIG Hurdle here based on the Banking Saga. How many TAX FREE YEARS will the Free Ports be offering? BBC claiming 5 Years - Yet Klaipeda Free Zone in EU Lithuania is already offering 7 Years TAX FREE? Clearly. a Benchmarking Study on 'Competition' would clearly highlight that 5 Years Tax Free isn't going to attract anyone. Dubai offers 50 Years renewable for 50 Years and next door Oman is offering 30 Years plus 30 Years renewable. There are thousands of Failed Free Ports or Special Economic Zones that set out on the same journey as Rishi and his team. UK has expensive Labour - and how can we waive NI Payments as that will create an immediate disadvantage for our own Domestic Industries. Next Item Power - Again the UK is not cheap compared to those Free Ports and Free Zones sitting on massive Gas Fields - they can almost give it away. and Cheap Labour available outside the Zone Gate Believe me I know abut these things.... As Neil quite rightly points out comparing the US Free Zones is also a NON Starter. They are NOT the same. And, will the EU sit back and let the UK ( England) offer better deals and Incentives. The Modern Day Free Zone was created in SHANNON - Ireland so they have a better than most idea of how to operate in this arena. The Chairman of DP World and Leader of the Middle Easts First Free Zone ( Jebel Ali) Sultan Bin Sulayem points out that the 23 Free Zones in Dubai created a Revenue flow in excess of $140 Billion with Jebel Ali FZ and Port generating $90 Billion of that figure. So when we hear Free Port Officials getting excited about a 2 Billion Investment we have to hold back the laughter. Last Year I met with one such Investor who was in process of raising $2 Billion to invest in Teesside - How quickly will you get your investment back I asked? A Blank look there followed!!!