The World Bank’s own Independent Evaluation Group has given the International Finance Corporation a bad report card for its efforts to reduce poverty in project areas. In other words, the World Bank has been favoring rapid economic growth over real poverty alleviation in its investments, and as ACT NOW! Has recently reported, http://www.actnowpng.org/content/even-world-bank-says-ifc-failing-help-poor, this policy has skewed down all the Bank’s own measures of success. This may come as small surprise to many, but it does pertain to the strange and fishy PMIZ project being pitched by the Dept of Commerce and Industry for the Vidar wharf area in Rempi, just north of Madang town, the historic site of Alexishafen Mission, and the eastern corner of the Pacific Ocean’s very important coral triangle. This triangle, which covers the tropical marine waters of Indonesia, Malaysia, Papua New Guinea, Philippines, Solomon Islands and Timor-Leste, contains at least 500 species of reef-building corals in each ecoregion, and is recognized as the global epicenter of marine biodiversity and a global priority for conservation.
After months of hemming and hawing about its involvement in the PMIZ, the IFC has produced a fact paper on its web site that somewhat disingenuously simplifies the benefits and impacts of this highly controversial, locally repugnant special economic zone (i.e. massive industrial zone) that is (at least) no longer being mislabeled a ‘marine park’ (under a proposed logo that had dancing dolphins!) The IFC, we learn, “has not been involved with any of the arrangements for the PMIZ.” And yet it is drafting the laws for these Special Economic Zones in PNG, and a “well functioning zone has the potential to provide thousands of much needed jobs”---to whom, we are not told. “Longer term benefits include indirect employment creation, skills upgrading, technology transfer, the “demonstration effect” arising from application of “best practices” and regional development.” Whatever that means in practice.
But read for yourself what the IFC says it is doing below.
As you do, however, keep in mind what the IEG has just reported about the IFC and its good works in poverty reduction more generally.
The report, Assessing IFC’s Poverty Focus and Results, finds that (and I am quoting from a synposis by ACTNOW! ):
- less than half of the projects reviewed were designed to deliver poverty outcomes;
- just one third of the projects addressed market failures, such as enhancing access to markets or employment by the poor;
- the IFC does not adequately consider issues of poverty reduction in project design; and
- its primary focus is the pace of economic growth, rather than the pattern of growth that could support the most vulnerable and the poor.
The IFC’s stated mission is to “promote private sector development…to create opportunities for people to escape poverty and improve their lives.”
However, the evaluation published found that “less than half (43%) of the projects … included at least one type of mechanism that addressed distributional issues at design or implementation.” Even worse wass the finding that only a paltry “13% of projects had objectives with an explicit focus on poor people.”
The rate is even lower for advisory services - the mechanism the IFC is using to draft the SEZ laws in PNG. The evaluation found that only “10% had identified benefits to the poor and 40% delivered benefits to society but did not provide evidence of enhanced opportunities to the poor.”
The report identifies several reasons for this failure:
- focus on poverty reduction is hardly taken into account in project design;
- poverty outcomes are not systematically tracked during project implementation; and
- the IFC’s evaluation framework does not have specific indicators for measuring the benefits to vulnerable groups and the poor.
The IEG highlights that the growth oriented policies of the IFC ignore broadly acknowledged market failures that exclude the poor from access to jobs, income, and markets – in a nutshell, to decent work and decent lives. It recognises that “the link from growth to poverty reduction is not automatic” and points that “deliberate action is often required to incorporate distributional aspect of growth into project design and implementation.” However, in its leveraging of the private sector the IFC fails to acknowledge that “private companies may have difficulties addressing distributional and equity considerations, particularly where market failure is widespread.”
The IEG report suggests the IFC needs to make serious changes to its institutional culture as well as to its development strategy and to “shift from a volume output culture to development impact and financial sustainability,” if it is to engage in effective poverty eradication schemes.
IFC’S ASSISTANCE TO PNG ON SPECIAL ECONOMIC ZONES
IFC’S PNG SEZ LEGAL AND REGULATORY PROJECT
Why is IFC involved in developing the legal and regulatory framework for SEZs in PNG?
The Government of PNG has incorporated the concept of Special Economic Zones (SEZs) into its overall
economic development strategy and, in 2008, asked IFC, a member of the World Bank Group, for assistance in developing the legislative framework that would allow SEZs to be established in PNG. IFC has since drafted a legal model that provides a best practice general framework for the development and operation of SEZs that will attract investment, facilitate private sector growth and create jobs while upholding strong environmental and social standards. As the government is committed to implementing SEZs in the near future, IFC’s expert technical assistance ensures that the framework, when implemented correctly, contributes to sustainable economic growth in PNG.
What stage of the project is IFC at?
IFC has developed a model legal and regulatory framework for SEZs that incorporates best practice approach and has provided the model to the Department of Commerce and Industry for consideration. The model sets out the overall regulatory framework under which government would regulate SEZs. Individual SEZs could be developed and operated by government or the private sector, governed by the overall regulatory framework. The draft model legislation is with the Department of Commerce and Industry for consideration and, as with any legislation, the draft will go through a stakeholder consultation process. Public and private sector stakeholders involved in the consultation include a range of government departments (Treasury, Finance to Departments of Labour and Immigration). Once this process is complete, the draft legislation will be reviewed by the State Solicitor and the First Legislative Counsel and amended if necessary. The entire package of policy and draft legislation will then be considered by the PNG Cabinet – the National Executive Council. If it is endorsed by the NEC, the draft legislation will then be introduced for consideration and debate by the Parliament.
How is IFC qualified to do this work?
IFC has done SEZ work in many countries globally, and in East Asia and the Pacific is currently working on zone regimes in Indonesia and Cambodia. IFC has carried out an extensive study of SEZ practice around the world and has analyzed successes and failures.
Is IFC involved with the Pacific Marine Industrial Zone?
No. IFC’s initial plans included assisting with the site selection of the PMIZ project, however, the government took the lead in selecting the site and IFC’s involvement was no longer required. IFC has not been involved with any of the arrangements for the PMIZ.
What is a Special Economic Zone?
Special Economic Zones are specially designated areas that provide policies and infrastructure attractive
to export-oriented investment. SEZs have relatively high-quality physical infrastructure such as roads,
electricity, and telecommunications. They also offer clear, streamlined custom clearance procedures (for both imports and exports) and reduced business entry and operating costs that boost an investment’s competitiveness and encourage firms to locate there.
IFC Investment Climate Advisory Service SEZs are one way that countries can attract investment. To be successful, however, they need to be supported by the appropriate legislative and regulatory frameworks that protect local interests and ensure the development and investors meet international best practice. Best practice dictates that governments assign additional administrative resources to ensure efficiencies and to make certain that companies comply with the necessary regulations.
What are the benefits of a Special Economic Zone?
When good practice policy, and legal and regulatory frameworks are provided and are aligned with national economic strategies, SEZs create jobs (including jobs for women), open new markets and provide new opportunities to develop skills and improve productivity. Well run SEZs result in export growth and export diversification. Increased foreign exchange earnings and government revenues also result – increasing governments’ ability to provide services and infrastructure to the wider population. Longer term benefits include indirect employment creation, skills upgrading, technology transfer, the “demonstration effect” arising from application of “best practices” and regional development. To achieve these results, the SEZ must operate under a good practice framework linked to targeted government objectives and economic growth. In PNG, there is currently a small domestic formal sector, which is incapable of absorbing the workforce generated by a rapidly growing population. A well functioning zone has the potential to provide thousands of much needed jobs.
Do zones cultivate skilled workers and protect workers’ rights?
Best practice SEZs bring new skills and technologies to their host country and increased skills and experience are of direct benefit to employees and their long term employment prospects. International experience shows that the quality and productivity of workers is central to the long-term competitiveness of a zone and it is therefore important that the industrial relations regime is flexible but fully consistent with the International Labor Organization’s stringent labor standards, including core rights of assembly, organization and collective bargaining.
How will workers pay rates in the Special Economic Zone compare to pay rates in other parts of Papua
New Guinea?
Workers wages in the Special Economic Zone will be covered by the national minimum wage laws of Papua New Guinea and workers in SEZs will have the rights in the wage setting process as workers anywhere in PNG.
How are environmental standards upheld in SEZs?
Best practice zones involve comprehensive environmental and social compliance standards, and
planning of zones requires careful assessment of potential environmental social impacts. In the case of
industrial park-style zones, especially private zones and more modern zones, they usually offer purpose-built facilities that are specifically tailored to the needs of target industries. These projects have a much better environmental record due to zone-specific environmental regulations with more effective implementation, planned facilities for waste treatment, and a realization that effective management of the environment is a key selling point to investors.
Are companies working in SEZs exempt from national laws and tax regimes?
No, in best practice, SEZs companies face the same income tax arrangements as any other company
operating in the country. International best practice is for zones to compete on the basis of facilitation, facilities and services rather than on the provision of special fiscal incentives. In PNG, IFC is recommending that the existing national income tax laws apply in SEZs.
IFC Investment Climate Advisory Service SEZs generally allow companies to import materials duty-free. Duty is applied when products leave the SEZ for the rest of the country and overseas exports are not subject to duty. These arrangements allow exporters to be internationally competitive, providing jobs and incomes domestically that would otherwise be lost to overseas markets. “Duty suspension” schemes of one kind or another are common around the world – for instance, Fiji provides for duty-free import of materials that are to be used in exports. Locally extracted mineral resources taken into an SEZ would still be liable for the relevant resource royalty.
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