More than 1 million refugees have already fled Ukraine., and that number could easily double. Fortunately, says  Thibault Serlet in this guest post, there’s a concept called refugee cities that may be able to help these people help themselves -- help them, he explains, by seeing them as more than just mouths to feed. Can these cities help fleeing refugees? Yes, he says, if they are done right...

Image Credit: UN Women Europe and Central Asia - Flickr | CC BY-NC 2.0

Can Special Economic Zones Help Ukrainian Refugees?

by Thibault Serlet

More than 1 million refugees have already fled Ukraine. Experts warn that number could double if the conflict continues to escalate. Fortunately, there’s a concept called refugee cities that may be able to help those fleeing the conflict.

The idea goes something like this: first, create a Special Economic Zone (SEZ) near a refugee camp. The SEZ will have incentives to facilitate doing business—such as tax incentives, less-restrictive labour laws, exemption from currency controls, and such. The goal would be to incentivise businesses to hire refugees and generate economic growth by enhancing economic freedoms.

The most well-known advocate of refugee cities is Dr. Michael Castle Miller, a well respected SEZ legal consultant who has contributed towards the creation of many of the best known SEZ frameworks in the world. He is the director of the Refugee Cities foundation dedicated to promoting the concept.

International support for refugee cities is growing. The World Bank has created a $2 billion USD fund to “support refugee haven countries.” A new European think tank called Solidarity Cities is also advocating for individual cities to step up and offer incentives to businesses who hire refugees.

There are a number of high profile success stories around the world, such as the Kigali Free Zone in Rwanda or Shenzhen in China, where SEZs have been used to promote economic freedom and have achieved incredible results.

Having said that, it’s important to caution that more government support might increase attempts at central planning, destroying the core principles of economic freedom required for a project like this to be successful. The third of SEZs that are not state funded are already doing great. According to an International Labour Organization and World Bank study from 2008, more than half of the world’s manufactured goods are produced in SEZs. That same study found that SEZs that are privately managed have lower vacancy rates, are less corrupt, and more efficient.

As one example, the government of Jordan has already created SEZs to create jobs for Syrian refugees. The programme has received significant support from the international community, with development finance institutions contributing more than $1.7 billion USD. The Jordanian government announced in 2016 that it hoped that its SEZs would create 200,000 jobs for refugees by 2021; however as of 2022 only 80,000 jobs have materialised. This is still 80, 000 more than would have otherwise been created.

Critics however argue that the infrastructure in the refugee zones is of generally poor quality, the incentives do not go far enough, and that without adequate job training programmes the zones can only act as low-wage labour camps. One critic explained that:

Even when opportunities have been advertised through job fairs few Syrians have taken up roles. Part of the problem is that the jobs available in these industrial parks are often in the garment sector or similar areas, low-skilled, low-paid jobs that commonly employ women. Many Syrians don't want these jobs: they'd rather take work in the informal sector, where pay and conditions are better.

The problem seems less to do with the concept, than with the general level and type of capital investment in Jordan itself -- and the 'institutional' reasons that this is so limited.

Ethiopia is also considering a similar programme, although it has yet to formally take off.

Refugee Cities Can Help Ukrainians… If They Are Done Right

With better institutional support -- more secure property rights, sounder contract law etc. -- European countries are well placed to consider reviving and revamping the idea of refugee cities to help Ukrainians fleeing the Russian invasion of their country -- to help them by freeing them to help themselves.

Refugee SEZs also have a major geopolitical advantage: neutral countries that want to avoid taking sides, like Switzerland, can safely create them without fear of compromising their neutrality.

To avoid repeating the mistakes Jordan made when attempting to create SEZs for Syrian refugees, they will need to ensure that:

• refugee Cities / SEZs have adequate infrastructure
• employers enjoy strong incentives (tax breaks, labour law exemptions, etc…)
• there is adequate coordination with global development finance organisations (World Bank, UNHCR, and ERDC)
• the focus is on creative private-sector jobs, not government-driven growth
• there is a path for refugees to return to Ukraine when the war ends

The problem with past attempts at creating refugee SEZs or cities is that they did not prioritise economic freedom. They will succeed if refugee cities enshrine liberty, rather than infringe on the freedoms of investors and refugees. More money from the government will likely be counterproductive, yielding far worse outcomes for the people that these projects supposedly try to help.

In order to both improve the economies of their home countries and advance freedom -- and to give the best long-term support to fleeing refugees -- SEZs only need to do three things:

1. Be entirely privately funded and managed
2. Be located on land that is purchased on the market rather than seized through eminent domain or privatisation of informally owned land
3. Be allowed to fail if market conditions do not favor the development of certain zones

Zones that follow these three rules will either succeed or fail, depending on whether or not market demand exists for what entrepreneurs therein have to offer. They will not become bloated state-sponsored leviathans that continue to survive year after year despite high vacancy rates. Only then, when zones are truly subject to market forces, will they begin to do what they are supposed to do, and quietly advance freedom.

Hopefully, there will soon be peace in Ukraine. But if the war continues, then hopefully refugee cities along these lines can help mitigate some of the human suffering.

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Thibault Serlet is the Director of Research at the Adrianople Group, a business intelligence firm that focuses on Special Economic Zones and master planned cities. He is also the architect of Open Zone Map, the world's largest SEZ dataset. He advises for Pronomos, a VC fund that invests in new city projects and co-founded the Startup Societies Network, a charter cities think tank. He frequently writes about SEZs, economic history, and the open data movement.

A version of this post previously appeared at the Foundation for Economic Education.