Opinion: A free trade zone in Papua New Guinea could create investment, revenues and jobs

Papua New Guinea could attract significant investments and derive large revenues from a free trade zone, according to Tony Restall, President of the consultancy Development Services International. He says the necessary legislation is already in place.

Free trade zone advocate Tony Restall

A free trade zone (FTZ) is a geographic area where goods are generally not subject to customs duty and other incentives may be offered such as lower taxation.

The free zone history of PNG goes back to the year 2000 when the Free Zone Act was released through Parliament in its efforts to stimulate a secondary economic revenue stream.

The Act itself was no easy process to present to Government; nevertheless it was eventually released.

Although not a perfect document, if the supporting rules and regulations are activated it would enable the Free Trade Zone to become an effective investment tool attracting foreign direct investment (FDI) into the country.

Dubai

Anyone researching free zones will naturally be drawn to places such as Dubai in the United Arab Emirates as the modern version of a free zone economy.

Dubai’s FTZ has no personal or corporate income tax and allows 100 per cent business ownership and capital repatriation.

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In the late 1970s the then ruler of Dubai, Sheikh Rashid al Maktoum, was concerned about the short-lived wealth created by an oil-based economy.

He was worried what would happen to his people when the oil ran out.

‘Last year the value of free trade revenues through Dubai exceeded US$500 Billion.’

He exploited an idea from neighbouring Sharjah (part of the United Arab Emirates) which was never implemented for fear of upsetting Abu Dhabi, the largest oil and gas producing Emirate and the largest contributor to the UAE Economy.

Dubai embarked on a two-pronged investment program. Many predicted it would end in failure.

The first step was the construction of the largest man-made port in the world: Jebel Ali, a 67 metre deep water port.

The Jebel Ali Free Trade Zone

Then, in 1985 the Jebel Ali free Zone was launched.

That was 33 years ago.

Last year the value of free trade revenues through Dubai exceeded US$500 Billion.

Lessons

How can the lessons learnt in Dubai be applied for the benefit of the PNG economy?

‘PNG could apply this formula and provide much needed foreign direct investment and employment.’

It is true that not all free zones have performed in such spectacular fashion.

Places not as well known, such as Sharjah, Ajman and Ras Al Khaimah all created free zones that have performed in less spectacular fashion.

But all have used the same basic formula to attract investors and are still generating large direct and indirect revenue streams.

Typically, a small free zone can generate US$100 million per year in administrative fees (office rentals and free zone licences).

PNG could apply this formula and provide much needed foreign direct investment and employment. But little has been done to use the legislation.

Locations could be established throughout the country, starting with the Port Moresby airport, sea port and CBD.

More far flung locations could also be used, provided it can be based on credible business logic.

— Tony Restall is President of the consultancy Development Services International.

Comments

  1. The FTZ could bring FDI and generate employment. There is a good location that would attract FDI to develop an industrial zone. #PNG #AsiaPacific #Liam3279

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