Covering topics from urban mobility and architecture to interior design and dream homes, a newsletter that reminds us wherewe are matters.
Before diving into the topic of this post, a personal note—
Hello from Sydney 🦘🛥️
2024 is the year that I spend little time at home, and I’m learning to embrace it.
During the past few years, I tried to make nyc my home – a conscious effort to make friends, find community, even purchase a small studio apartment in Williamsburg with the hope to build some permanency. I feel a little behind in life. In my 30s, isn’t it time to settle down and build roots?
Yet, we cannot plan life. Despite these efforts, work, family, and personal aspirations kept me traveling.
In January, I found myself in Lagos, Nigeria. Life is where work is. By working on a project there, my network and social life is there. Now that I feel a greater sense of familiarity and connection with the country and its people, is it time to build a life there?
Later this month, I’m headed to Beijing. Feeling a deep sense of calling from my roots, I want to spend more time in China and immerse deeper in the innovation, wander around the new public infrastructure, and be inspired by the creative businesses.
Instead of chasing where I should be in life, I’m learning to embrace the opportunities that come to me. Instead of planning for what’s far away, I can only do the next best thing.
Left: Woke up in Beijing on Jan 1, 2024. Photo taken @Voyage Coffee, Sanlihe, Beijing, China
Right: Photo taken @Freedom Way, Lekki Phase 1, Lagos, Nigeria
Free zones, history, mechanics, and culture
Free zones (or special economic zones) — “designated areas where laws or regulations are different than the rest of the country, with fiscal and regulatory incentives including customs duties, tax, and banking to spark economic growth.”
On history
Shannon, the first free zone
The first resemblance of free zones or special economic zones (SEZs) traces back to Shannon, Ireland. Shannon is a small town whose main industry is its airport– housing the world’s first airport duty-free shop.1
In the 1930s, transatlantic commercial aircraft traveling between New York and London were required to land at the Irish airport to refuel. Dubai had similar beginnings in aviation where its strategic location posed a natural landing point for long transcontinental flights.
When travelers are in transit, they do not belong to a jurisdiction – they are in “no-man’s land” similar to international waters. Inspired by ships that sold items without paying government tax, the Irish2 invented the concept of the duty-free store. This store at Shannon became a massive source of jobs and one of Ireland’s largest employers.
Following the success of the duty-free shop is the Shannon Industrial Free Zone (established in 1959). The modern free zones as we know them today began to take shape.3
Started as an experiment, Shannon pioneered the idea of “selling and buying things tax-free”. Governments from around the world learned to leverage the strategic advantage of geographical location, applying tax advantages at shipping ports as ways to enable catalytic economic growth.
Shannon Airport, 1935 (source); First duty-free shop at the Shannon Airport, 1947 (top right image source, bottom image source)
With the increasing reliance of global manufacturers on offshore production, export-oriented economic zones expanded in developing nations. These zones shared the basic offer to investors – relief from customs and fiscal duties and other regulations that enable ease-of-doing-business.
There are nearly 5,400 SEZs in the world (report from 2019) and the number continues to increase with zones targeted at not just manufacturing but also newer industries and sectors.
Open Zone Map by Adrianople group’s map of SEZs, a comprehensive attempt at mapping every single Special Economic Zone (SEZ).
On business
The mechanics of Export Processing Zones
The idea of free zones is built upon pragmatism and focused on job creation, education, and skills transfer.
Export Processing Zones (EPZs) are a type of free zone focused on the export of goods.4 In EPZs, companies can import raw materials duty-free, and defer tax payment until the point of sale to the end customer.
Through only paying duty on the finished product and not the unutilized raw material, businesses achieve efficiency in only paying tax on the material that generated revenue. Additionally, deferring tax payments frees up operational capital. Some manufacturers save close to 46% when they manufacture in the free zone as opposed to in the conventional area.5
From the perspective of the government, even though import duties were not imposed, governments earn VAT, a form of sales tax, when the finished goods are exported into the customs area of the country and purchased by consumers. In Nigeria, for instance, free zones generated hundreds of billions of dollars for the government in terms of duty paid on exports per year.6
Left: Alaro City, Lagos, Nigeria. Right: Export Processing Zone in Vietnam (source)
“The idea of free zone everywhere in the world is value addition – for transfer of knowledge and job creation.” –Matthew Akowa, Free Zone Operations @Alaro City
The government encourages certain businesses over others. In the process of approving new Free Zone Enterprises, the government reviews the feasibility study, or business model of the companies, valuing those that bring in knowledge to the country and hire locals, while discouraging those that focus on short-term business gains and those that pose a negative impact on the environment.
Education and job creation of the local workforce are highly valued. The government favors companies that produce products from end to end than those that only focus on a portion of the assembly line. These companies hire and train workers to oversee a longer value chain and in turn, these workers become equipped with the knowledge to produce an entire product. Thus, foreign direct investment leads to skilled labor.7
On culture
China, in the spirit of experimentation
The success of free zones stems from a country’s propensity for experimentation. China, under Deng Xiaoping, is a great example.
After Deng Xiaoping became Prime Minister of China in 1978, four SEZs including Shenzhen were established in the next year in 1979.8
"It doesn't matter whether a cat is black or white, as long as it catches mice." – Deng Xiaoping
I think two cultural traits played a role in enabling the success of Chinese SEZs: humility-enabled learning and a spirit of experimentation.
China historically welcomed foreign ideas, learning from the West various ways of doing business and living. Our culture is built upon humility; learning and knowledge precede originality; we pay respect not only to our own history but also to ideas from the rest of the world.
In the act of borrowing, the Chinese infuse the borrowed ideas with local practices and cultural identity (“Chinese essence, Western application” 中体西用).9 Perhaps it’s this level of depth in learning that allowed China to adopt the global legal framework to such granularity that gave international investors a sense of familiarity on foreign land.
深圳是真的好
他比较适合我们这样的，农村长大、起点不高、但拼命，还是对我们很公平的
下班后还是会谈工作，不是只想着去哪儿玩，而是怎样做的更好
跟广州差别很大，这边很拼，经常工作到一两点
深圳就像一个小美国一样
至少在我们感觉
宣小东 @大芬油画村的画家
“I love this city. Shenzhen is really good for people like us – grew up in the village, a lower starting point, yet we work hard. Shenzhen gives us the opportunities others cities do not. Other cities like Guangzhou heavily rely on inherent relationships one has, while Shenzhen is fair. It rewards those that work hard.
After work, we don’t just talk about entertainment; we are constantly experimenting to build towards a better life.
Shenzhen is like a little America. At least that’s how we feel here.”
-Xuan Xiaodong, artist @Dafen Oil Painting Village, Shenzhen
Right: Xuan Xiaodong, artist @Dafen Oil Painting Village, a friend I made while in Shenzhen
Experimentation is also core. It takes a country not only foresight but also courage, ambition, and a bit of risk to experiment with new concepts.
To establish an SEZ means granting a region a level of autonomy, relinquishing a level of control. It seems obvious in hindsight, but the very act of granting power is often a sensitive topic.
There is a term in Chinese known as fangquan 放权– it means granting necessary power. During the Qing Dynasty, Cixi’s 慈禧 inability to effectively grant power to the young emperor caused numerous revolts. Fangquan is not an easy step for a leader to take and is hindered by fear.
During the era of open and reform 改革开放, the Chinese government adopted the philosophy of jianzheng fangquan 简政放权– simplifying government agencies and delegating management rights and operations to enterprises. They took calculated risks in the form of regulatory sandboxing and only expanded into other regions upon experimental success.
With the aid of SEZs, China scaled manufacturing to the globe, and placed Shenzhen, and China, on the world map.
The development of free zones is critical for new city development. With business incentives and economic growth, a country sees a growing and diverse population. It may not be immediately obvious, but these free zones have shaped, and continue to shape the urban landscape of various corners of the world.
Tying back to the personal note from earlier, I’m grateful to be traveling across Nigeria and China, touring new cities, and learning ever a bit more about how the world works.
From our team retreat this January @Lakowe Lakes, Lagos, Nigeria
There are many types of SEZs and FTZs (Free Trade Zones)– Export Processing Zones, for example, emphasize on the export of goods and services. What Is a Free Zone in International Trade
Many companies move the production arm of the company inside the zone while maintaining the sales and distribution in the conventional area. From conversation with Matthew Akowa from Alaro City.
Deng sent Jiang Zemin and a group of Chinese officials on a world tour in 1980 to learn about special economic zones. Amongst the most inspiring, was Shannon. Read more about Shenzhen in my earlier post Utopian Cities of the World Part II
