Can free zones fix the global refugee crisis?

Forced out of their countries and often constrained within the gates of camps, millions of refugees around the world have little hope of escaping the informal economy in order to survive.

Not in Jordan, however. A compact signed with the international community in 2016 has become a blueprint for a change in the way host countries deal with the protracted refugee situation by introducing special work permits for Syrian refugees. It also puts special economic zones (SEZs) at the heart of a new approach that considers displaced people as assets, rather than liabilities, for host countries.

One step forward

Three years on, the Jordan Compact has been replicated in Ethiopia, although it has yet to live up to original expectations. If results on the ground can improve, the model can evolve and adapt, particularly in strengthening the role of SEZs that facilitate the formal employment of the refugee population.

“The experience of Jordan is definitely a step in the right direction and a major breakthrough from the status quo of humanitarian response, to a development-based solution to refugee crises,” says Michael Castle-Miller, CEO of Politas Consulting, which works in the development of special zone concepts, including that of so-called ‘refugee cities’ for displaced people.

At the height of the Syrian refugee crisis in 2016, the Jordanian government struck an agreement with the international communities where it agreed to reform its labour market and issue work permits for Syrian refugees otherwise barred from the formal economy. At the same time, the EU granted preferential trade access to manufacturing firms sourcing at least 15% of their workforce among Syrian refugees and operating within the country’s 18 SEZs, while the World Bank earmarked $300m to help create firms to operate in those SEZs.

Outside the zones, Syrian refugees were allowed to work in agriculture, construction and certain other services. The Jordan Compact aimed in this way to reduce the overflow of refugees into Europe by providing job opportunities in Jordan, while boosting the slow-growing Jordanian economy. “The designated development zones could provide hundreds of thousands of jobs for Jordanians and Syrian refugees over the coming years,” the Jordan government stated in 2016 as the compact was unveiled.

Disappointing returns

Results have fallen short of these high initial expectations, however. As of February 2019, only 16 companies had applied for registration to export under the new scheme with the EU and 13 were approved, according to figures from an independent monitor’s assessment report published by the EU in March.

Collectively, these have more than 1000 employees, of which 280 are Syrians – a figure dwarfed by the 656,512 refugees registered in Jordan, 300,468 of whom are working age. The investment dividend has been marginal, as levels of headline and greenfield FDI across the country remain at decade lows, according to figures from the UN and greenfield investment monitor fDi Markets.

“Refugees don’t necessarily want these jobs because they would make the minimum wage, which they see as low compared with the informal economy. At the same time, a lot of these zones are far away from where the refugees live,” says Lilly Carlisle, spokesperson for the UN High Commissioner for Refugees (UNHCR) agency in Amman. Additionally, the jobs available often did not match the skills of interested refugee workers, and the level of competitiveness of Jordanian manufactured goods is low in the EU market, which further hampers the reach of the scheme.

Zoning out

Outside the zones, however, the Jordan Compact has gained more traction. Overall, 153,535 work permits had been issued as of late August 2019, which account for 51% of the working age population of refugees in Jordan, UNHCR figures show. On one hand, almost every male Syrian refugee of working age has applied for a permit to work in agriculture and construction on a freelance basis through cooperatives (it is unclear, though, how many of them are active workers). On the other hand, the participation of women has been very limited.

But the scheme has provided some relief for the refugee population. “Having a work permit does give refugees the freedom to move around the country, to provide for their families, it makes them less vulnerable, and it also helps refugees and locals to co-exist,” says Ms Carlisle.

Some of the lessons learned in Jordan have been used to fine-tune a new compact in Ethiopia, which hosts 900,000 refugees mostly living in camps along its borders. Funded by the UK, the European Investment Bank and the World Bank, the $500m project received the final green light in January and aims to support the country’s industrialisation programme. It hopes to create 100,000 new jobs, 30% of them among the refugee population, not only by issuing work permits, but also by taking on a more holistic approach to improve the competitiveness of the country’s SEZs and business environment.

Grey days

“It is not always enough to give the formal right to work. The idea has evolved into creating zones addressing some of the elements driving people into the grey economy,” says Mr Castle-Miller of Politas Consulting.

He points out that in places with high refugee populations such as Colombia and Ethiopia, ease of doing business factors, including minimum wages and costs related to opening a business, leave many locals and refugees alike at the margin of the formal market, thus forcing them into the grey economy.

“In Ethiopia, around Addis Ababa, right on the border of the city with lots of farmland, it is an area that 10 to 15 years from now will be covered in slums," adds Mr Castle-Miller. "We would like to designate a zone there, ideally up to 2000 hectares, and have a developer in the form of a social enterprise co-owned with the residents of the zone to negotiate a concession agreement with the government to lease the land and perform many governance functions on the government’s behalf over things such as issuing business licences, regulating the construction industry, developing a masterplan and so on. In the evolution of this vision, we are using the tool of SEZs to target informality, in addition to typical elements of SEZs such as industrial areas, to lease out to foreign investors and use that FDI leverage to support of the development of a thriving SME economy within the zone.”

Pressing concerns

The UNHCR puts the total number of forcibly displaced people globally at about 71 million, according to estimates published in June 2019, including 26 million refugees, with those coming from the crises in Syria, Afghanistan and South Sudan making up 57% of the world’s total refugee population. This number is expected to rise as violent conflicts drag on and climate change wreaks havoc.

A development-based approach pushes host countries to give a better chance to refugees to integrate in the job market, provide for their families and contribute to the development of the local economy. SEZs have the tools to pilot programmes that would be difficult to start from scratch across a country. But such schemes must be sound from a business perspective, requiring a holistic approach that goes beyond issuing work permits. The Jordan Compact was a breakthrough in this direction, but the international community has much to do, both to prove that the concept works and to get the most out of it.