By Jim Coleman – Head of Economics at WSP
In early 2021, the UK Government ran a competition for around 40 areas across the country that were vying to be named among the 10 or so new freeports – a form of special economic zone, outside normal international trading rules and regulations. It’s a process we’ve experienced first-hand, as our teams at WSP have supported bids submitted by Cumbria and Freeport East, which combines Harwich and Felixstowe.
The freeports initiative is designed to attract major domestic and international investment, with freeports benefitting from tax reliefs, simplified customs procedures and a streamlined planning process. The Government hopes this will boost international trade, foster innovation and reduce economic imbalances across the UK – with a particular focus on technology for net zero, such as hydrogen and offshore wind.
Integrated, not isolated
Freeports are most likely to succeed if they are integrated into the wider economy. First and foremost, they need to target suitable types of industry. The decision-making process must look at an area’s competitive advantage, the strengths and weaknesses of its existing industrial base, and its labour market.
It’s important not to overlook what’s already happening in an area, as freeports can build on existing expertise. So, while Freeport East is keen, should its bid be successful, to attract hydrogen and additional offshore wind investment, it also wants to build on its nationally important agricultural sector – developing new high-value, high-tech industry innovations to make agriculture more sustainable and efficient.
If such development is to have wider benefits, it’s vital to consider how freeports will function as part of an overall system – looking across factors such as supply chains and the labour market. Often, and particularly in the developing world, freeports or special economic zones have been seen as a silver bullet, a magic accelerator of economic growth. They are not – and certainly not on their own - and many have fallen flat for this reason.
Freeport success stories in places such as Singapore and the UAE have certain factors in common. They are ideal, strategic locations targeting suitable industries with skilled workforces available and strong infrastructure connections. They use these advantages to drive high-value industrial development by attracting new external investment. However, the UK Government wants more from the country’s freeports. As well as trade and innovation, it wants to level up the economy – and this is a bigger ask.
Addressing the economic imbalance between regions of the UK needs very significant, bottom-up improvement in qualifications and skills. It’s crucial that the transition to net zero, which the Government hopes freeports will help drive, takes everyone in the country along with it. The last time the UK had a major economic shift – the deindustrialisation of the Thatcher era – many communities were left behind. This created regional disparities that persist today.
Collaborate to level up
If freeports are to support the levelling up agenda, they will need to collaborate – with the government devising an overall strategy for everything to fit together – so that investment flows in a joined-up way into skills and local enterprise as well as technology and processes. The Institute for Public Policy Research (IPPR) and others are already warning that skills shortages in areas such as construction could delay the transition to net zero.
I’ve seen first-hand the challenges that occur when special economic zones within a country do not coordinate their approach and are left to their own devices. In South Africa, there was no requirement to work together and zones started competing for the same investors. This created a race to the bottom, with each zone trying to outdo the others through bigger tax breaks, higher incentives or more land. A new strategy to look at how the whole system of zones could work in a mutually reinforcing way was needed and subsequently developed.
As freeports are announced by the UK Government, it’s vital that those selected become collaborators, rather than competitors. With each freeport integrated into the wider economy and all the different areas collaborating, they can be at the centre of an economic shift that will increase trade, foster innovation and help to level up the economy. This is a big task – and creating the freeports is just the first step.