Legal foundations and responsibilities

SDIs cover delimited portions of the national territory and are therefore covered by national legal frameworks. Yet, SDIs may also be legally bounded spaces, where a set of rules and procedures are different from those operating in the rest of the national territory, for example in the case of more liberal rules on investment and trade in SEZs. Accordingly, SDIs

may involve a particular legal and regulatory regime that contains one or several dedicated laws or measures written in a number of legal documents concerning land use, on-site building requirements, infrastructure provision, compliance with environmental and labour standards, etc. Starting from the design phase, these laws and legal texts determine which types of SDI investments and developments are allowed and selected in a particular area, and how access to these areas is restricted via licences and permits (Farole & Akinci, 2011). These legal foundations of SDIs should clearly formulate the specific roles, duties and legal obligations of ministries and agencies in order to offer transparent public partner structures for private developers, zone operators and investors. In particular, when many private and public actors are involved, a solid legal foundation for SDIs is required to manage the deliverables of all actors involved. In fact, for investors, local businesses and affected local communities, the legal framework guiding the processes and dealings of business contracts, land use, conflict resolution and settlement is of central importance.

Accordingly, the quality of the legal framework is expected to have a strong impact on the performance and long-term competitiveness of SDIs.

Evidence across sub-Saharan Africa as well as in other LMICs supports that notion and suggests that the legal underpinnings of SDIs can still be improved (Farole, 2011).

First, SDI performance often suffers from overlapping and ambiguous legal frameworks. SDIs have their own regulatory regimes, yet they are subject to national legal frameworks and require third-party controls to ensure alignment with national laws. The latter is especially important if zone development and zone operation are in private hands. For example, a clear licensing regime should guide private developers in their application process on the locational criteria of physical developments, the approved type of economic activity, the required financial reserves or turnover and other necessary norms and standards. However, empirical cases suggest that national legal responsibilities of dedicated national or local authorities often overlap and/or collide, especially if spatial programmes were initiated through different government ministries that have produced disconnected and inconsistent laws and regulations (Farole, 2011; Farole & Akinci, 2011). The result may be the existence of several disconnected legal and regulatory frameworks and legal acts that create considerable confusion over the duties, roles and responsibilities of zone owners, developers, operators and regulators. In fact, in Tanzania the Ministry of Trade and

Industry and the Ministry of Planning, Economy, and Empowerment separately launched two programmes – one for EPZs and one for SEZs – creating significant confusion among developers, operators and investors as to the legal foundations (Farole, 2011). Moreover, since both programmes lacked proper legal operationalisation for the regulation and management of the programmes, many EPZ and SEZ developers and operators were left alone in defining their legal obligations and became vulnerable to institutional clashes. There were similar experiences in Nigeria with two conflicting regulatory bodies, namely the NEPZA and the Oil and Gas Free Zones Authority. Thus, instead of issuing several SDI acts, governments should ensure that all legal frameworks are integrated into one national legal document that is concerned with the development of SDIs.

Ambiguous legal frameworks and not clearly separated responsibilities not only create confusion and inter-agency conflicts, but encourage the misuse of power. In many SDIs in LMICs, the zone owner, developer, operators and regulator are one and the same public body (Aggarwal, 2005; Farole, 2011; Gálvez-Nogales, 2014). Thus, in this rather common situation, SDIs are left to regulate themselves and assume roles under one roof that partially conflict. In the African context, examples can be found in Lesotho, Tanzania, Nigeria and Kenya (Farole, 2011). SDIs in this actor constellation have been shown to provide land and facilities below market price (Farole, 2011).

Furthermore, with upcoming private competition in zone development and operation, publicly-run zones have come under pressure. As a result, some all-in-one zone developers, operators and regulators have been found to misuse their regulatory functions to get rid of potential competition. For instance, anecdotal evidence suggests that the all-in-one zone authority in Bangladesh has delayed the issuance of an environmental permit to a private developer for a time frame of more than eight years (Farole, 2011).

For this reason, it is important to ensure institutional checks and balances, the existence of an independent regulatory agency for all (types of) SDIs as well as proper representation of private and public parties in SDI boards.

Second, not only is the existence of de jure transparent legal frameworks important for the long-term success of zones and SDIs, but also their de facto implementation. Problems in the implementation of legal acts is a common failure among many SDIs, particularly in Africa (Farole, 2010;

Farole & Akinci, 2011). A lack of de facto implementation and proper legal enforcement might be due to the fact that laws and regulations are unclear, not applicable or antiquated. Whereas the first is due to a bad design, the

latter two are the result of inflexible laws that cannot adapt to changing environments. For example, setting up fixed rules about the design of SDIs can backfire if laws do not leave enough scope for changes in the nature of activities within an SDI, the markets to which spatial initiatives have access to and the types of firms being allowed to operate in them.

Thus, setting rules is a balancing act between providing clear benchmarks and flexibility for economic developments. This is particularly relevant for SDIs that grow beyond national legislation into transnational regional corridors.

Also, ambiguity might be used by the powerful to extend patrimonial and nepotistic advantages (Acemoglu & Robinson, 2001; De Janvry, Gonzalez-Navarro, & Sadoulet, 2014; Montgomery, 1984; Warriner, 1969). Finally, another likely reason is the lack of personnel resources and know-how to ensure legal compliance. Most municipal jurisdictions that are responsible for spatial programmes are underfunded and often lack the manpower as well as the means to enforce legal obligations.