international association of jesuit business schools forum detroit, june 23 / 27-2001

INTERNATIONAL ASSOCIATION OF JESUIT BUSINESS SCHOOLS

FORUM

DETROIT, JUNE 23 / 27-2001

FREE ZONES AS LOGISTICS PLATFORMS AND THEIR IMPACT IN THE DEVELOPMENT OF

LATIN AMERICAN COUNTRIES

Jaime H. Ferrerosa T.Pontificia Universidad Javeriana.Cali,Colombia.

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FREE ZONES IN THE INTERNATIONAL CONTEEXT

Free zones are logistic platforms essential for the development of economics.

They are flexible and they adapt to the economic policies, generating fast and effective benefits to the economic development of the regions.

They are global competitiveness centers, with tributary incentives and strategy location faciliting the P.I.D.

They benefit from special incentives, such as: Tax exemption on supply, fixed assets, imports, etc. Income tax exemption due to exports. Special regulations for companies that establish there. Freedom on money exchange.

Jaime H. Ferrerosa T.Jaime H. Ferrerosa T.Pontificia Universidad JaverianaPontificia Universidad Javeriana

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FREE ZONES IN THE INTERNATIONAL CONTEXT

Currently, there are approx. 2.000 free zones, generating 2 million jobs.

In the USA there are approx. 213 free zones. 2.700 move US$150.000 million,. 30% of its production is for exports.

In the Popular Republic of China there arte approx. 124 free zones. 10.000 investment projects move US$120.000 million. .8% is for the

exports. An example of successful growth is the Tianjin-Teda free zone with 33

square kms and 128 established companies. US$10.000 million inversion and they generate US$1.300 million on exports.


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IMPACT FREE ZONES IN THE ECONOMIC DEVELOPMENT

Up to the 60’s its activity was commercial. After that they became promoters of industrial and service activities, projecting towards the 21 century.

With the globalization of the economies, new bases for international trade are established, have a trend towards the: Elimination of export aids. Drastic reduction of protection levels. Inclusión of the concept of service, foreing inversion and technology. Prohibition of limiting investment to export compromises.


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FREE ZONES...THEIR GROWTH AND THE LABOR SECTOR

Main objetives of free zones is to contribute to generate jobs, currencies, investments and production.

An example of the growth of free zones, is the one in the state in Malayo in Penang : 31 factories in 1970, with a work force of 3.000 people . 743 factories in 1997, with a work force of 200.000 people. This shows a

growth noticeable in 27 years, in both companies located there and in the generation of jobs.

USA with 213 free zones and México with 103, are considered the most dynamic free zone operators. Most of them are ensembling factory complexes or “maquiladoras” , located in the border cities of Tijuana, Ciudad Juárez and Matamoros, generating a big number of jobs.


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FREE ZONES...THEIR GROWTH AND THE LABOR SECTOR

According to IWO, in Central América, in 1995, 250.000 jobs were generated in 53 free zones.

In Costa Rica, from the 49.000 jobs generated in the clothing and the electronic sectors, 30% of the jobs are generated in the free zones.

The free zone of Colon in Panama employs 21.500


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¿WHATS THE PROBLEM WITH THE FREE ZONES? 1998 IWO report. “Relegate workers of both sexes to jobs badly paid and

of low qualification, They are considered easily replaceable”.

Factors that influence : They attract industries with an intensive labor, such as clothing, shoe making,

electronic component ensaembling. In other words of simple technology. Personnel rotation is not a problem due to the easiness of the replacements.

Generous incentives and low cost installations, attract basic transformation industries, with low professional direction and investment on new technology or production improvement.

The intensive basis of the labor makes companies see it as a cost necessary to be lowered, instead of as an asset that should be profited from.

There are very few governments that have applied policies oriented to induce investors to transfer technology and training to the industry and local workers.


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¿WHATS THE PROBLEM WITH THE FREE ZONES?

IWO recommemdations.

“Free zones to develop all their economic and social potencial, governments must design a wide and well defined investmentand industrialization strategy, coherent with the need for promoting the economic development and the repect for the rights of the workers”.

“Offer some industrial support services to the local suppliers of goods and services, with the purpose of helping them satisfy the demands for promptness, cost, quality and scale from companies established in the zones”.


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FREE ZONES...PYMES

PYMES They normally generate 30% to 70% of the jobs in the world. They have flexibility in their production schemes and a facility for

adaptation to the changes in the markets and new technologies. Contribute 30% to 55% to the GDP depending of the country.

Spain, contribute in 40% to the sales and 50% to the exports. USA, contribute in 60% to the generation of jobs. Korea, generate 40 of exports. Taiwan, generate 55% of exports. China, generate over 50% of exports.

It is essential for the development of a region to fortify the PYMES. Looking for the increase of their competitiveness potential and the capacity of exporting.


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FREE ZONES...PYMES Free zones can become logistic platforms for the creation and

fortification of Pymes. It is necessary to definec strategies that identify entrepreneurial

vocations and facicitate the creation of new Pymes. The main difficulties for the potential development of Pymes are:

Low education level of their directors. Lack of general and specific information on their activities, competitors

and the market. Lack of an appropriate technological development.

Pymes, independently, don’t have the conditions to face the previous difficulties.Free zones can provide these service.

Free zones can give qualification, support and direction on trade and export, assistance on P.I.D. among others.


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COSTA RICA…MODEL OF EXPORT PROMOTION In 1981 the free zone law is created.

They have generated job opportunities in the clothing and electronis sectors mainly.

The component of exports has changed, taking the non traditional sector form a share of 40.1% to 55.9% in a period of 10 years, thanks to the law of free zones.

Exports have grown 69%. From US$960 to US$1.624 million.

Unemployment rate has reduced significantly. It is about 5%.now.


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FREE ZONE OF COLON...COMMERCIAL WINDOW AND LOGISTIC CENTER

1997…..US$5.513 million on exports. US$6.268 million on re-exports.

Nowadays there are more than 1.600 companies established generating 21.500 jobs.

About 250.000 businesspeople visit per year, generating deposits to the US$416 million.

Move goods in more than 14.029 vessels from 84 countries.

Is the seat for more than 110 first category banks.


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FREE ZONE OF COLON...COMMERCIAL WINDOW AND LOGISTIC CENTER

PANAMA GOVERNMENT PROJECTS FOR THE

SUPPORT OF THE ACTIVITIES IN THE FREE ZONE

OF COLON

Port privatization. New ports. Telephone service. Railroad service. Highways. Airports.


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CHILE…FREE ZONE OF IQUIQUE

Created in 1925, with the purpose of promoting the development in the north of Chile.

Until 1990 the free zone was public. Since that year 48% was privatized, which gave it a greater promotion to its activity.

Because of its strategy location, it is an international trade center with influence on the market of Northern Chile and adjacent such as the south of Perú, Bolivia, Paraguay and the north of Argentina.


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BRASIL…FREE ZONE OF MANAOS In 1910, there was a recession in the amazon region, originated by the

bankruptcy of the operation of natural rubber industry. Manaos lost its leadreship as the world rubber center and its impulse and dynamism as an economic development pole.

In 1960 Manaos free zone is created. Its main objetve is to consolidate a modern and competitive economy in the western amazon, structuring bases for the self-supported development for the region.

40 years after the importance of Manaos in this development context was more intense because it is home for a scientific production and production and research base.

It is an area designed to be a development center profiting from the natural resources of the Brazilian amazon region.


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COLOMBIA…THE NEED TO PROMOTE THE NON TRADITIONAL INDUSTRIAL SECTOR

5.787 companies generate the currencies the non traditional sector gives to the colombian trade. 467 companies, equal to 8.1% , generate 81.1% of the exports in

this productive sector .US$4.487.3 million. 5.320 companies, equal to 91.9% , generate 18.9% of the exports

of this productive sector. US$1.046.6 million.

The large industry is the one generating the highest currency flow, but it is not there where the job generation source Colombia needs to reduce its unemployment rate is.


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Región I. Central zone. Bogota.

Free zone of Bogota. Started in 1997. Jewelry and emerald market project. Direct impact in the generation of

massive labor of cutters and personnel dedicated to these activities. Flower market project. Support small and medium flower growers, to

increase their flower exports from US$500 to US$6.000 million. Facilitate P.I.D. and related activities, from the free zone.

Pymes projects. Promote the development of these in the free zone. Give them all the support to start exporting, currently only 13% of Pymes have exported.


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COLOMBIA…THE NEED TO PROMOTE THE NON TRADITIONAL INDUSTRIAL SECTOR Región II. Northwestern zone. Medellin

Free zone of Rionegro. Started in 1994. Assist industrial companies in the clothing, textile, shoemaking, and

flower sector. It has generated 13.300 new jobs and US$100 million on exports.

Región III. Southwestern zone Cali. Free zone of Palmaseca. Started in 1980.

Generates currencies for US$600 million annually. It has generated 12.000 jobs.

Free zone of the Pacific. Started in 1998. It generates currencies for US$300 million annually and 2.200 jobs. It

projects 25.000 jobs in the first 6 years .


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Región IV. Northern zone Cartagena de Indias. Touristic free zone of Baru. Started in 1994. It has generated 4.500 direct jobs and 6.000 indirect jobs. Generates currecies for US$300 million annually.

Free zone of La Candelaria. Assist companies in the Petrochemical, Iron and steel and Metalmechanic

sector basically. Generates exports for US$560 million annually. In 10 years it projects to generate 56.000 jobs.

Tourístic free zone Pozos Colorados- Sta. Marta. Started in 1998. It has generated 2.500 direct jobs and 3.000 indirect jobs. It generates currencies for US$45 million annually.


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CONCLUSIONS

Free zones around the world, when administered well, follow their objetive and they become development centers for the home regions.

Pymes, have in these zones, a great opportunity to become currency and job generators, in the areas where the free zones are established.

In Latin America free zones that have run for some time, have proven to be the promoters of the economic development of their region.

The governments should aim the projects proposed in the creation objetives for the free zones in their regions and therefore assure the obtaining of the sought benefits.


international association of jesuit business schools forum detroit, june 23 / 27-2001

Documents

growth of free zones

impact free zones

free zone of colon

tianjinteda free zone

dynamic free zone operators

economic development

generation of jobs

established companies