Focus: Free & Special Economic Zones

A Pivotal Role

A Pivotal Role

May. 12, 2013

Iran's prime location along the Persian Gulf has allowed the country to develop economic zones for specific industries.

Celebrating their long-cherished relationship, Iran announced plans to establish a joint free-trade zone (FTZ) with neighboring Armenia in July 2012. As outlined in the Memorandum of Understanding (MoU) signed between the two countries, the zone will be located in the province of Syunik and is expected to contribute further to cooperation in terms of investment, trade, and environmental concerns. In addition to demonstrating Iran's eagerness to maintain regional economic cooperation, the initiative signifies the government's larger plans to expand the number of FTZs and special economic zones (SEZs) it operates. Currently, Iran is home to six FTZs and 16 SEZs, with many projects on the horizon.

Functioning as magnets for FDI, Iran's FTZs are designed to generate a diversified industrial base and promote non-oil exports and the sectors of tourism, transportation, and industry. By contrast, SEZs are meant to enhance the transportation of goods, improve Iran's supply and distribution networks, and support the promotion of exports. In recent years, the country has focused on establishing a new generation of SEZs, which are introduced with special themes in mind, such as petrochemicals, shipping, minerals, and oil and gas.

FREE TRADE ZONES

Iran's interest in free zones was sparked in the 1970s, when the possible development of Kish Island as a trade zone in the Persian Gulf was first promoted. Today, Kish Island is Iran's flagship FTZ in the Persian Gulf. Located 19 kilometers from the mainland, the island's 90-kilometer area serves as a base for large oil and gas companies and over 100 other production enterprises operating in the industry sector. Investment incentives in the Kish Island FTZ include 20 years of tax exemption, no entry visa requirements, and 100% foreign ownership.

Maximizing its use of the Gulf as a key trading hub, a second FTZ was established on Qeshm, the largest island in the region. Situated 22 kilometers from Bandar Abbas, at the mouth of the Strait of Hormuz, this zone enjoys rich natural gas reserves that are refined at the nearby Gavarzin facility, and features deep channels along the coast that can handle large-tonnage vessels en route to other countries in the Persian Gulf. Qeshm offers investors the benefits of being connected to the nationwide electricity network and excellent communications infrastructure, as well as important transports links such as the international airport and ferry terminals connecting passengers and cargo to the surrounding region.

The remaining FTZs in Iran are Chahbahar, Aras, Aznali, and Arvand. Chahbahar, established in 1991, sits on the littoral Sea of Oman, 70 kilometers from the border with Pakistan. Here, investors enjoy 30 years of tax exemption, the repatriation of capital and profit gained from economic activity, and an array of opportunities in the ICT, tourism, and oil and gas sectors. Aras and Aznali, established in 2003, are located on the northern border of Iran, with excellent access to CIS member countries as well as the Caspian Sea. With rich natural resources, Aras has become a hotspot for agriculture at the crossroads of Azerbaijan, Armenia, and Nakhchivan. Larger in size, Aznali FTZ occupies a space of 3,200 hectares along 8 kilometers of the Caspian Sea coast. Activity in Aznali consists mainly of manufacturing in the industrial sector (steel, minerals, equipment, electronics, textiles, and automotive) and services, such as the construction of health centers and public spaces, as well as setting up banks throughout the region. In the southwest of the country, Arvand FTZ serves as an export hub with links to both Kuwait and Iraq. With benefits such as an abundant source of water and energy, Arvand facilitates investment in factories and production, especially in the sugar industry.

As Iran looks outward to form more economic links, countries in the region are eager to participate. When completed, a seventh FTZ established through a partnership with Armenia would open up Iran to more opportunities in the CIS region, as well as boost the energy exchange between the two countries. Furthermore, the zone would effectively remove all export taxes, allowing a more affordable transfer of goods and services between Iran and Armenia.

SPECIAL ECONOMIC ZONES

Originally designated as “protected customs areas," Iran's SEZs were formed as a result of the first Five-Year Development Plan (FYDP), launched in 1990. Since then, the areas have been under the control of the Iran Customs Administration, which aimed to develop the protected areas into special zones that could be used to facilitate storage and export-import activity.

Today, 16 SEZs are operating throughout Iran, with seven more planned for development. Many of these zones are focused on a central theme, such as the 2,000-hectare Petrochemical Special Economic Zone in Mahshahr, and Bandar Bushehr, a 9,700-hectare area specializing in shipping and port facilities. Other SEZs, including Payam, Yazd, Lorestan, and Shiraz, are operating for the purpose of air cargo, textiles, quarrying, and electronics, respectively.

Local construction company TSI Group has taken the initiative to operate a 1,400-hecatare SEZ designed for the automotive industry. The zone's location has proven to be a decisive factor for the company, as President S. J. Mousavi told TBY. “Two automotive corporations have approached us," he explained. “They are interested in this SEZ since it is the closest free zone to Tehran, which is the largest automobile market in the country." With the establishment of the zone, customers will be able to purchase luxury cars in Iran at a reduced cost.

Pardis Technology Park has also stepped up to participate in the creation of an SEZ, investing approximately $200 million to build upon 53 hectares. By 2025, the company's President, Mahdi Safarinia, aims to expand the park to 1,000 hectares and inject an additional $35 billion into the project. “Since 2005, great importance has been attached to technology in Iran, and every province of the country is becoming active in this field," Safarinia told TBY. In close proximity with Tehran, “Pardis Technology Park plays a pivotal role, with access to top universities, high-tech companies, and valuable researchers," he added. Beyond attracting FDI and promoting exports, both FTZs and SEZs are creating jobs, upgrading domestic technological capabilities, and offering Iranians a new source of know-how and managerial experience. Moreover, the expansion of the free trade and special economic networks will be crucial to Iran's industrial production as it diversifies and experiments with non-oil commodities in the upcoming years.

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