Refugee Cities: A Proposal for Using Special Economic Zones to Expand Options for Displaced People

Transcription

1 Refugee Cities: A Proposal for Using Special Economic Zones to Expand Options for Displaced People Concept Note Working Draft March 3, 2016 This concept note has been developed by Refugee Cities, an NGO dedicated to creating special economic zones for refugees. The effort is also promoted by the Innovation & Planning Agency (IPA), which connects global resources with dispossessed populations. For more information, contact Michael Castle Miller (Refugee Cities) at michael@refugeecities.org or Kilian Kleinschmidt (IPA) at kkleinschmidt@switxboard.net. 1

2 The Challenge: Why do we need refugee cities? The refugee crisis is Europe s greatest and most pressing challenge in modern history. An estimated 60 million people were displaced as of the end of More than 11 million of these are Syrians, amounting to half of the country s population. 2 4 million of these Syrians are living in nearby countries that are unprepared to host them. In Lebanon, the one million Syrian refugees amount to a quarter of that country s population. Jordan s refugee population of over 600,000 is straining its housing market and water resources. Meanwhile a generation of children is growing up without formal education. 3 A growing number of these migrants are arriving in Europe, a fact that is straining the fabric of the continent s political union. In 2015, over one million people arrived in Europe by sea, often on unseaworthy vessels or dinghies. 4 Border countries like Italy, Greece, and Bosnia as well as Germany and Sweden, which are receiving the bulk of asylum applications are demanding a more equitable allocation of Europe s migrants. Our current responses are inadequate. Only 10% of Syrian refugees in the surrounding region are living in camps. 5 Most avoid or even flee from camps because the limited work opportunities and poor living conditions there. The resources of the UN High Commissioner for Refugees (UNHCR) consistently fall well short of its requirements to meet peoples basic need, let alone to achieve any long-term development goals. Most refugees are capable of working and providing for themselves, but many host countries restrict their right to work. Tragically, this forces most refugees to sit idle, with their talents going to waste. This situation will likely grow more extreme over time. Assad s Russia-aided military campaign and the onset of spring suggest refugee flows to Europe will continue to increase in Furthermore, over the coming decades, the World Bank and IMF estimate that worldwide displacement and migration will rise due to global inequality, labor shortages in low-skilled sectors in developed countries (combined with population growth in developing countries), increased mobility, and climate change. 7 The world needs an innovative, self-supporting, and politically feasible response to these urgent challenges. The Concept: What is a refugee city? A refugee city is a special-status community for displaced people. In a refugee city, migrants who would ordinarily be prohibited from working, can find legal employment, operate their own businesses, or train in new skills. Rather than asking countries to admit all of the 1 UNHCR, Mid-Year Trends UNHCR Data, available at data.unhcr.org 3 UNHCR, The Future of Syria, 4 Ibid. 5 Ibid. 6 Washington Institute, The Worst of the Syrian Refugee Crisis is Coming for Europe (2016). 7 World Bank / IMF, Development Goals in an Era of Demographic Change, Global Monitoring Report 2015/

3 world s refugees, or even to allow all of the migrants within their borders to work anywhere in the country requests that are not politically feasible in the near term a refugee city provides a more immediate solution: let refugees work in a designated area with good infrastructure, connections to markets, and a streamlined administrative system. A refugee city is like a special economic zone (SEZ) for refugees. Over the last few decades, SEZs have become catalysts of reform and economic growth when nationwide progress is stalled. Innovative policy makers can overcome bureaucratic hurdles by piloting, or testing, a beneficial concept within an SEZ without directly facing a losing battle against entrenched interests resisting countrywide change to the status quo. China, for example, used its SEZ program in the 1980s to introduce free-market policies, which would have been impossible for the communist central party to embrace at a national level. Many other countries have reformed barriers to immigration, foreign investment, labor mobility, and other policies through zones. When well-conceived and rationally structured, SEZs can fuel socially and environmentally responsible growth. Like well-functioning SEZs, refugee cities operate under a legal and institutional framework that prioritizes both the cities investment climate and their development impact. Key aspects to the cities include: Freedom to Work Both refugees and citizens can live and work legally in a wide varity of professions Employers are free to employ refugees Trade Facilitation Customs duties on imports brought into the city are exempted if they are used to produce exports EU and other developed nations allow products from the refugee cities to be imported duty free Effective and Efficient Regulation A dedicated agency operates a onestop shop and regulates all activities. Host-country governments, NGOs, and international partners provide additional support. Private-Sector Investment Private-sector developers and operators build and provide services, recovering costs Revenue is generated through leases and service charges to businesses More on this is provided below, under The Details: How do Refugee Cities Operate? The Opportunity: Mafraq, Jordan, and beyond The strongest opportunity for the development of the first refugee city is in Jordan, which currently hosts over 630,000 Syrian refugees. 8 The province of Mafraq, in the north, hosts the largest refugee camp in the region, Za atari, with over 84,000 residents. A short distance away from Za atari is a Jordanian SEZ, the King Hussein Bin Talal Development Area (KHBTDA). 8 UNHCR (as of 17 Feb. 2016), available at 3

4 The KHBTDA currently struggles with underinvestment reportedly due to the lack of a sizable labor force in the area. 9 Jordan has developed infrastructure for the KHBTDA at a cost of roughly US$140 million, and the zone has the capacity to employ 100,000 people. Currently, only about 10,000 people are employed. The Jordanian government is currently considering using the KHBTDA and other SEZs to address the refugee crisis. Jordan already has significant SEZ experience upon which to base a refugee cities program. Its Aqaba SEZ has contributed greatly to the country s economic growth since 2001 and has a strong legal and institutional framework. 10 Jordan has also established several Qualified Industrial Zones (QIZs), which are another type of SEZ that allow manufacturers to sell products to the United States duty free. Its development areas, such as the KHBTDA, are yet another SEZ precedent. Two organizations have joined forces to help establish the first refugee city: Refugee Cities, an NGO consisting of SEZ consultants, including Jean-Paul Gauthier, who helped establish Jordan s Aqaba and development-areas programs; and The Innovation & Planning Agency, an organization led by Kilian Kleinschmidt, who managed the Za atari refugee camp from 2011 to By combining top policy, legal, and economic experts on SEZs with top refugee development experts, this team has the unique ability to position the first refugee city to benefit both migrants, the host country and the international community. If successful, the refugee cities model can be replicated throughout Jordan, the Middle East, and beyond. The Rationale: Who benefits? Host Counties. Refugee cities convert a perceived problem into an engine of economic growth for host countries. Currently, many countries throughout the Middle East, Europe, Africa, and East Asia are hosting refugee populations far beyond what many officials and citizens think their societies can bear. Because keeping refugees outside the border is difficult from both practical and political perspectives, they are often forced to host the refugees whether they like it or not. The question for these countries is how to respond. If they house refugees in camps, the refugees become a drain on public resources and possibly more prone to radicalization. Also, they will typically find ways of leaving the camps and working, often on the black market where they have less positive impact on the economy than if they were allowed to work legally Alexander Betts & Paul Collier, Help Refugees Help Themselves, Foreign Affairs (20 Oct. 2015). 10 Nicolas O. Rockler, The Impact of the Aqaba Special Economic Zone on the Jordanian Economy, Kavet, Rockler & Associates (2006); Marwan A. Kardoosh, The Aqaba Special Economic Zone, Jordan: A Case Study of Governance, ZEF Bonn (2005). 11 Alexander Betts, et al. Refugee Economies: Rethinking Popular Assumptions, Refugee Studies Centre, Oxford (June 2014). 4

5 Economists have known for years that allowing refugees to work legally will normally benefit the economies of the countries hosting them. Over the medium- to long-term refugees, along with other immigrants, tend to raise wages and create jobs by starting their own businesses and purchasing goods and services. 12 A refugee city allows the country to capture some of the benefits from allowing these migrants to work, while working toward broader inclusion. Allowing refugees to use their skills and engage in rewarding work will also make them think more favorably of their surrounding communities and their lives, making them better members of society. Refugee cities are also better tools for accomplishing the goals of refugee camps. Host countries often use refugee camps to keep refugees in clusters where aid can be distributed, where they will not compete for jobs in the major cities, and where they can be more easily located and eventually repatriated. Because camps provide few opportunities, however, most refugees avoid them and scatter out throughout the host country. As newly created places of opportunity, refugee cities would reverse this trend by attracting refugees rather than repelling them, and would bypass political contestations over existing resources by creating new jobs in new cities. Donors and the International Community. Refugee cities provide a more costeffective response to the refugee crisis than existing efforts. The current aid-based approach drains public resources, fails to address basic needs, and too often prevents refugees from being agents of their own development. It also fails to stem the flow of undocumented migrants. By tapping into the productive potential of migrants themselves, refugee cities would deliver a far greater development impact at a much lower cost. Rather than relying on aid for perishable tents and food rations, refugee cities rely largely on private investment in revenue-generating assets. Revenue is generated from the businesses that grow in the area and the residents who work in those businesses. Governments and donor institutions, therefore, need only to facilitate and abet this growth, such as though the modes of participation at right. Refugee cities also eases pressure on countries weary or fearful of migrants. Campaigns to keep migrants out of countries are challenging (politically and practically), costly, and normally ineffective. Refugee cities, Modes of Participation for Donors / Foreign Governments Providing soft support for the project through diplomacy and negotiation. Easing trade barriers with the cities. Lending/guaranteeing private loans for development costs. Providing financial and technical assistance to the regulatory authority over the city. Monitoring and evaluating progress against objectives. Providing short-term, targeted subsidies for the poor. 12 See e.g., OECD, Migration Policy Debates (may 2014), available at Alexander Betts, et al., Refugee Economies: Rethinking Popular Assumptions, University of Oxford, Humanitarian Innovation Project (2014), available at 5

6 however, bring opportunities to the migrants, which creates an incentive for them to stay in the region. Foreign investors. Refugee cities open up access to markets and underutilized talent. Under the refugee cities concept, several potential markets could attract investors: If the EU grants duty-free access for products made in the refugee cities by relaxing its rules of origin, foreign investors and Jordanian business can utilize Syrian and Jordanian labor to sell products to the EU. Businesses formerly located in Syria can resume operations in the refugee cities. Syria has had a strong artisanal history and an international trade in textiles; these industries can perhaps be brought in to the refugee cities. Service-sector businesses like construction, logistics, and hospitality are in short supply in some countries around Syria, like Jordan, and could benefit from the displaced Syrian labor force. Social impact investors could be attracted to the cause of helping refugees. Displaced People. Perhaps most importantly, refugee cities provides a rare opportunity for migrants to use their skills to improve their lives. The Details: How do refugee cities operate? The legal, institutional, and operational framework for refugee cities is critical to its success or failure. Fortunately, experience with SEZs over the last half century has left us with numerous lessons about the factors that lead to successful zones, which can be translated to refugee cities. A few salient factors include: The location of the SEZ must be optimal from a logistical and labor-market perspective in order to attract businesses. This means both (i) strong connections to major markets through airports, seaports, rail, etc. and (ii) proximity to a sizable workforce who are able to work for (or to train to work for) the types of businesses likely to invest in the SEZ. Efficient and effective administration. Generally this involves a dedicated, wellresourced, and technocratic SEZ regulatory agency and an experienced private-sector developer and facilities manager Reliable power, high-quality infrastructure, and security. Targeted improvements to key regulatory constraints on the business environment. Strong institutions undergird any good SEZ and the same is true for a refugee city. The following is a recommended legal and institutional framework for a refugee cities program: 6

7 Adopts refugee cities law Provides land, legal protections, resources, and oversight. Host Country Donors / Governments Provides oversight / monitoring & evaluation Partial financing or guarantees for development costs and assists with establishment of the Refugee City Authority. Developer / Operator Refugee City Authority Private-sector firm(s) Develops infrastructure & buildings and provides services (utilities, investor facilitation, SME support, etc) Regulates / oversees zone activities Consists of representatives of host-country government, residents, and donors / NGOs A refugee city should be self-supporting and generate reasonable returns on investment. Successful SEZ developers and operators generate a profit by recovering their initial startup development costs through rent and service charges to businesses. A refugee city should operate under a similar model as demonstrated below: Investors recover costs and receive long-term return on investment Operational costs (e.g., maintenance) / Services generate revenue (e.g. utilities) Banks / Equity Investors establish and fund development company Sustainable Business Model for a Refugee City Leases to businesses & residents, generating revenue Host government sells or leases land to the developer Phase 1 development costs (infrastructure and facilities) 7

8 Initial development costs will naturally be significant and returns on these costs will likely take a long period of time and involve risk. Thus, risk-tolerant lenders, such as international development banks and foreign governments, will need to provide guarantees for loans from commercial banks and possibly lend money themselves. The developer can begin collecting rent and service charges from businesses that open in the city. Initially, rent and service charges will need to be heavily subsidized for refugees arriving with few resources. Over time these subsidies can be scaled back as the refugees earn income. Over time (perhaps 20 to 30 years) the developer should deliver a return for its investors. The host country government should have direct buy in to the project and a financial interest in its success, such as by owning the land or owning a minority interest in the developer. The Risks: What are they and how can they be addressed? Refugee cities, especially if located near the source of conflict, will face challenges. Provided below is a preliminary list of these risks, along with a few potential mitigation tactics. Risk Inadequate markets / low interest from businesses Inadequate labor skills / poor matching with potential investors Location not well-suited for investment Loss of political support Opposition from domestic businesses / residents Social / Cultural / Environmental Challenges Mitigation Thorough analysis of potential investment sectors and value proposition prior to development. Actively marketing the cities to companies in targeted sectors. Reviewing skills of migrants in the area and selecting targeted investment sectors accordingly. Implementing skills training programs. Rigorous feasibility study prior to site selection, including analysis of market demand and existing infrastructure & resources. Buy-in from host government, such as ownership interest in the developer / land. Contractual investment protections between the developer and government, enforceable by international arbitration. Create linkages with the surrounding domestic economy that encourage refugee city businesses to source supplies from domestic businesses, hire workers from the surrounding community, and other mechanisms utilized by SEZs. Requiring a thorough social and environmental impact assessment 8