SEZ business activity tops $3 trillion
At first blush, the numbers provided by the Jamaica Special Economic Zone Authority appear to suggest a dramatic change in the SEZ landscape, based on the implied eighteenfold growth in revenue flows from one year to the next.
But the special economic zone only added a few more players last year.
The sheer size of the leap in revenue ascribed to the companies – which in 2021 was the equivalent of $184 billion but rocketed above $3 trillion last year – is also due to two additional factors: rising compliance and ongoing recovery from the coronavirus pandemic, the agency has said.
It’s data captured by the self-reporting system developed by the JSEZA, but it still only tells a part of the story, as not all licensees are yet uploading information to the agency’s Self-Reporting Monitoring Instrument or SRMI. The tool was launched in May 2021 to monitor “the regulatory, compliance and economic performance of SEZ constituents”.
JSEZA says compliance with the reporting requirements remains a work in progress, but that there has been strong improvement as SEZ operators become more familiar with the system.
In 2021, compliance rose to around 80 per cent among 119 licensees; last year that rate improved even further to 89 per cent amid a rise in the number of licensees to 122.
“The variance for 2021 and 2022 account for not only growth in the SEZ but greater SRMI reports being submitted in 2022 compared to 2021. Also, several strategic changes were made to the SRMI in 2022 to improve the self-reporting by SEZ entities,” the agency said in a brief on the system provided to the Financial Gleaner.
COVID-19 recovery
Interim CEO of JSEZA Kelli-Dawn Hamilton later added that some of the variance was explained by recovery in earnings from the COVID-19 fallout.
The reporting system captures information from three categories of firms with the zone – developers, single-entity developers and occupants. The zone is not bounded by geography, but is situational to each licensed company’s operating base. In 2020, there were 131 SEZ locations in operation; now there are 187.
Hamilton said a majority of SEZ investments fall within the global digital services sector, otherwise known as the outsourcing industry, with the manufacturing sector a close second.
From the reported data, revenue from goods and services in the zone amounted to US$22.18 billion in 2022, which converts to about $3.4 trillion in local currency. That’s up from US$1.2 billion ($184.6 billion) in 2021.
“The authority relies on our SEZs to provide precise information that we can use to guide and enhance the ongoing development of the SEZ regime,” said Hamilton.
JSEZA has also “conducted a series of awareness-raising sessions designed to educate stakeholders on the significance of reporting and how to report accurately. Since then, the submission rate has increased, and we anticipate this trend to continue as we increase our engagement with our SEZ community,” she added.
As for actual exports from within the zone, those were estimated at US$367.7 million in 2021 and US$13.15 billion last year.
“The preliminary comparative numbers between 2021 and 2022 show positive gains … which supports the position that the SEZ regime is positively impacting export numbers,” Hamilton said.
The Self-Reporting Monitoring Instrument also recorded total investments of US$993.37 million ($151 billion) in ventures in the zone in 2022. The figure, Hamilton said, was reflective of data collected from 88.8 per cent of SEZ companies.
The projected investment for FY2023 is around US$645 million.
“The actual figures for each year typically exceed projections,” said Hamilton. “Projections are based on what companies submit to us,” she said.
The majority of SEZ investments was said to be in the form of commercial developments. These include purpose-built spaces for companies to occupy, said Hamilton.
The operators also spend on capital equipment such as ICT devices, high-efficiency HVAC systems, renewable energy equipment, and transport and logistics equipment. HVAC refers to heating, ventilation and air conditioning.
‘Free zone’ replacement
Jamaica created the special economic zones in 2016 to replace the ‘free zone’ regime that was seen as a breach of international trade rules. To attract business, SEZ operators are offered low-tax incentives, including a special 12.5 per cent corporate income tax rate, which is half the marginal rate now paid by local companies; relief from income tax on rental income; GCT relief; employment tax credit; and a promotional tax credit set against R&D and training expenses. Over 18,000 employees received trained during the year ending December 2022, Hamilton said.
SEZ firms also benefit from customs duty relief; stamp duty exemptions on land transactions; and tax deductions relating to capital expenditures. Hamilton said that from information supplied by Tax Administration Jamaica for January to March 2022, the GCT zero-rating stimulated $2.1 billion in economic activity.
Companies operating in the SEZ span food processing, logistics and supply chain management, pharmaceuticals, automotive and outsourcing, among others.
“These industries collectively provided over 95,000 jobs at the end of the last reporting period, December 2022. These numbers are expected to increase as the number of SEZs increases in the new reporting period,” Hamilton said.