Why should service companies be interested in Freeports? 

October, 2021 - Shoosmiths LLP

Freeports are obviously of immediate interest to importers, exporters, and manufacturers, as they allow the import of materials and manufacture or incorporation of those materials into items which are then exported, all without incurring tariffs and with minimal regulation.

The government’s stated objectives in establishing Freeports were to establish national hubs for global trade and investment across the UK, promote regeneration and job creation and create hotbeds for innovation. The absence of incentives aimed at service industries (the bulk of the UK economy) was notable in the initial government consultation, but James Wood-Robertson, (head of the Shoosmiths Freeports Task Force) maintains that service-based businesses should be as interested in Freeports as goods-based industries.


Tariff flexibility and simpler customs processes may enable the first two of those objectives to be met if businesses attracted to Freeports are exclusively manufacturing or involved in import/export, but even then, the type of manufacturing business that may find opening, expanding and investing in Freeports appealing is limited. If the government expects businesses that assemble products for overseas consumption to flock to Freeports with a simple “look, no duties!", offer those manufacturers will need additional incentives to do that in the UK when there are cheaper workforces elsewhere.


Equally, while there is no doubt that Freeports can deliver economic benefits to an area and its immediate surroundings, they can only do so if the infrastructure (physical and digital) is built and serviced to facilitate the establishment of the Freeport and if the existing local economy has the right characteristics to allow the Freeport to function and flourish. For example, expecting a Freeport to become a hotbed as a hub of semiconductor innovation would be pointless if there is no knowledge community in the location to support that ambition.


There will undoubtedly be opportunities for service businesses such as shipping companies, recruitment consultancies, facilities management businesses, not to mention catering and recreation and outsourced call centres, to support those supply and manufacturing companies based in Freeports.


While proximity to customers is advantageous, these service providers could be based in the Freeport’s hinterland, rather than the economic zone itself, so supply chains would not have to move from current bases, avoiding the risk of shifting unemployment. Opportunities also exist for those companies involved in supporting the infrastructure of the Freeport, such as construction and telecoms providers.


Tax incentives associated with Freeports (e.g. business rates discounts, enhanced capital allowances) and planning liberalisation may be more directly appealing to manufacturers, but additional incentives such as improved connectivity and related infrastructure (especially road and rail links and digital infrastructure) and the creation of "regulatory sandboxes" to facilitate the trialling of new technologies within Freeports may prove attractive for the service sector.


Freeports are also good news for local authorities in that the government hasn't been prescriptive about their governance. There is no requirement for a freeport governance body to be incorporated, although a legal entity of some kind (perhaps similar to development corporation model) would create more confidence for investment. Above all, Freeports give the opportunity for locally led development designed to drive regional growth and employment.


James Wood-Robertson said:


“Freeports will require a partnership of the public and private sectors, which itself will require political will, clarity of policy and alignment of interests.  I am convinced, however, that opportunities are there for the taking by both the manufacturing and service sectors that will deliver economic benefits within and beyond the Freeport zones. Hopefully some more detail about how the government can facilitate Freeports to fulfil this promise will be part of the Chancellor’s remarks on 27 October 2021 when he delivers his much anticipated Autumn Budget and spending review.”


 



Link to article

MEMBER COMMENTS

WSG Member: Please login to add your comment.

dots