Industry 4.0 jeopardises SEZs’ job creation prospects

Special economic zones (SEZs) are facing a delicate trade-off between one of their traditional mandates, job creation, and industry 4.0, which promises to bring along big capital investment, but also reduces their capacity to create employment. 

“If a country is part of global value chains, then they don’t have a choice [but to adjust],” Olga Memedovic, deputy director of the department of trade, investment and innovation at the United Nations Industrial Development Organization (Unido), tells fDi on the sidelines of the 2019 SU-Meet forum, held by free and special zones association Femoza on November 13-15. 

“The structuring of their production will be determined by the market as they have to produce accordingly to the quality specifications of the lead players and original equipment manufacturers (OEMs) they are supplying. If they ask all the standards of quality of digitalisation, then they don’t have a choice. SEZs have to be very conscious about that, because OEMs can move out of any specific country if they cannot find these quality standards in the supply chain and then they are left with not jobs at all.”

With the advent of industry 4.0, policy-makers in countries that are just recently trying to join global value chains (GVCs) are facing a major, long-term strategic issue as their current effort to create jobs through SEZs focused on manufacturing may fall short of expectations. Often, though, their demographics prevent them from embracing a full paradigm shift in their policy-making. 

“Bangladesh is a highly-densely populated country of 160 million people - it’s a must for the government to generate job opportunities,” Paban Chowdhury, head of the Bangladesh Economic Zones Authority (Beza), tells fDi. 

“Through our SEZs programme, we want to create 4 million direct jobs in the next 15 years, which in turn would generate another 6 million indirect jobs. That is possible by establishing SEZs focusing on ready garment industries and special sub-zones for small and medium enterprises (SMEs), which can also generate job opportunities. At the same time, we cannot say no to technology. Our labour intensive industries are still competitive, but in 10 to 15 years we will not be able to afford them any more, we have to have advanced manufacturing and services.”

Policy-makers in Ethiopia are also looking to deepen their presence in GVCs through the development of SEZs focusing on labour-intensive manufacturing. 

“Ethiopia is a country of over 100 million people, 65% of them are youngsters, they need more jobs,” Lelise Neme, CEO at the Ethiopia Industrial Park Development Corporation, tells fDi. 

“In this moment, Ethiopia has competitive advantages [in labour-intensive manufacturing] and can become a production hub for the whole continent, which is why the government is investing in SEZs to create employment and also bring in private investors and their technology. Looking at the longer term, the government decided to invest in SMEs for their potential to innovate and so that people can have their own jobs and don’t expect to be employed by anybody.”