Flows increased despite declines in many of the larger recipient countries. The increase was supported by continued resource-seeking inflows, some diversified investments and a recovery in South Africa after several years of low-level inflows.

In a sign of continued dynamism, greenfield project announcements in the region doubled in value, recovering from their 2017 pause.

Failing to maintain momentum after the 2017 increase halted a long slide. FDI in the region is still 27 per cent lower than during the peak of the commodities boom.

Flows to the least developed countries recovered from their 2017 fall, back to $24 billion, the average for the decade.

Declining by 27 per cent. Inflows to Europe halved to less than $200 billion, due
to negative inflows in a few large host countries as a result of funds repatriations
and to a sizeable drop in the United Kingdom.

Declining by 28 per cent to $34 billion, driven by a 49 per cent drop in flows to
the Russian Federation.

In 2018, some 55 economies introduced at least 112 measures affecting foreign investment.

Since 2011, at least 11 countries have introduced new screening frameworks and at least 41 amendments have been made to existing regimes.

The majority of new investment policy measures still moved in the direction of liberalization, promotion and facilitation.

In 2018, countries signed 40 international investment agreements (IIAs). For at least 24 existing treaties, terminations entered into effect.

Almost all new treaties contain numerous elements in line with UNCTAD’s Reform Package for the International Investment Regime.

New treaties aim to improve balance and flexibility, but they also make the IIA regime less homogenous.

Capital market policies and instruments designed to promote the integration
of sustainability into business and investment practices are transitioning from
niche to mainstream.

Within these geographically delimited areas governments facilitate industrial activity through fiscal and regulatory incentives and infrastructure support. There are nearly 5,400 zones across 147 economies today, up from about 4,000 five years ago, and more than 500 new SEZs are in the pipeline. The SEZ boom is part of a new wave of industrial policies and a response to increasing competition for internationally mobile investment.

Basic free zones focused on facilitating trade logistics are most common in developed countries. Developing economies tend to employ integrated zones aimed at industrial development, which can be multiindustry, specialized or focused on developing innovation capabilities. The degree and type of specialization is closely linked to countries’ level of industrialization, following an SEZ development ladder.

Some focus on new industries, such as high-tech, financial services, or tourism – moving beyond the trade- and labour-intensive manufacturing activities of traditional SEZs. Others focus on environmental performance, science commercialization, regional development or urban regeneration.

Many zones in developing countries are being built through bilateral partnerships or as part of development cooperation programmes. Regional development zones and cross-border zones spanning two or three countries are becoming a feature of regional economic cooperation.

They can help attract investment, create jobs and boost exports – both directly and indirectly where they succeed in building linkages with the broader economy. Zones can also support global value chain (GVC) participation, industrial upgrading and diversification. However, none of these benefits are automatic.

SEZs are neither a precondition nor a guarantee for higher FDI inflows or GVC participation. Where they lift economic growth, the stimulus tends to be temporary: after the build-up period, most zones grow at the same rate as the national economy. And too many zones operate as enclaves with limited impact beyond their confines.

Doing so is critical, because the turnaround of unsuccessful SEZs requires timely diagnosis, especially when there has been a significant level of public investment in zone development. UNCTAD’s SEZ Sustainable Development Profit and Loss Statement (P&L) can guide policymakers in the design of a comprehensive monitoring and evaluation system.

• Strategic design of the SEZ policy framework and development programme is crucial. Zone policies should not be formulated in isolation from their broader policy context, including investment, trade and tax policies. The types of zones and their specialization should build on existing competitive advantages and capabilities. And long-term zone development plans should be guided by the SEZ development ladder.

• The sustainable development agenda increasingly drives MNEs’ strategic decisions and operations, which should be reflected in the value proposition that SEZs market to investors. Modern SEZs can make a positive contribution to the ESG performance of countries’ industrial bases. Controls, enforcement and services (e.g. inspectors, health services, waste management and renewable energy installations) can be provided more easily and cheaply in the confined areas of SEZs.
  SEZs are traditionally big employers of women, with about 60 per cent female employees on average. Some modern zones are implementing gender equality regulations, such as anti-discrimination rules, and support services, such as child care and schooling facilities, setting new standards for SDG performance.

Such zones would aim to attract investment in SDG-relevant activities, adopt the highest levels of ESG standards and compliance, and promote inclusive growth through linkages and spillovers.

The recommendations in this report aim to provide guidance for policymakers in their efforts to revitalize and upgrade existing zones, and to build new ones that avoid the pitfalls of the past and are prepared for the challenges ahead. The key objective should be to make SEZs work for the SDGs: from privileged enclaves to sources of widespread benefits.