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Urban Research & Practice

ISSN: 1753-5069 (Print) 1753-5077 (Online) Journal homepage: https://www.tandfonline.com/loi/rurp20

Attracting investment by introducing the city


as a special economic zone: a perspective from
Mauritius

Zaheer Allam & David Sydney Jones

To cite this article: Zaheer Allam & David Sydney Jones (2019): Attracting investment by
introducing the city as a special economic zone: a perspective from Mauritius, Urban Research &
Practice, DOI: 10.1080/17535069.2019.1607017

To link to this article: https://doi.org/10.1080/17535069.2019.1607017

Published online: 22 Apr 2019.

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Urban Research & Practice, 2019
http://dx.doi.org/10.1080/17535069.2019.1607017

Attracting investment by introducing the city as a special economic


zone: a perspective from Mauritius
Zaheer Allama* and David Sydney Jonesb
a
Curtin University Sustainability Policy Institute, Curtin University, Perth, Australia; bSchool of
Architecture and Built Environment, Deakin University, Geelong, Australia

Increasing urbanisation require proportionate capital injections in infrastructural


projects to respond to local challenges. However, local public investments, especially
in low-income economies and nations, are scare due to their low budgetary capacity,
resulting in a downgrade of quality in primary public infrastructure; hence, impacting
on liveability levels of socio-economic dimensions of these cities. This article pro-
poses a policy tool to address this issue by envisaging the city as a Special Economic
Zone with appropriately formulated fiscal mechanisms to encourage private sector
investment in the public domain in accordance with guidelines and objectives set by
government or public institutions.
Keywords: Urban regeneration; fiscal mechanism; economic incentivisation; public
domain; special economic zone; Mauritius

1. Introduction
Increasing urbanisation, while catering for basic amenities for both residential and
transient populations, is expected to require substantial investments in public infra-
structure per urban centre. This priority is occurring in parallel with a global aware-
ness about the impacts of climate change. These impacts are clearly articulated by the
IPCC (IPCC 2018), and which highlights the sensitivity of low income and emerging
economies. These impacts, specifically for low-lying nations like the Small Islands
Developing States (SIDS), include submergence from the increasing frequency of
tidal surges, urban flooding and coastal erosion that eventually adds to the burden of
existing concerns relating to population growth, economic development and
urbanisation.
SIDS, first recognised as a distinct group of developing countries at the United
Nations Conference on Environment and Development in June 1992, are a group of
small island countries that share similar sustainable development challenges, includ-
ing small but rapidly growing populations, limited resources, remoteness, suscept-
ibility to natural disasters, vulnerability to external shocks, excessive dependence
on international trade and fragile environments. Their economic growth and human
development are hampered by high communication, energy and transportation costs,
irregular international transport volumes, disproportionately expensive public
administration and infrastructure, and little to no opportunity to create economies
of scale.

*Email: zaheerallam@gmail.com

© 2019 Informa UK Limited, trading as Taylor & Francis Group


2 Z. Allam and D.S. Jones

There are calls by many researchers for the strengthening of local capacity to enable
both infrastructural and economic viability (Folke et al. 2002; Berke, Kartez, and Wenger
1993; Marsden and Smith 2005), but this remains a challenge as the financing of these
much-required urban climate change mitigation projects entails high economic inputs
that emerging nation economies struggle to meet (Allam 2018a; Allam and Newman
2018a). The economic aspects of how to adequately address this urban challenge are
scarce in the literature, as while wealthy Western countries can ably subsidise climate
mitigation plans, in contrast, low-income nations default to seeking funding through
foreign aid (e.g. UNESCO, AusAid, other nations) mechanisms and long-term loans. The
latter ultimately impacts upon the local liveability levels in the long term for a nation,
making it highly debt dependent upon the source of the aid and/or loan, often resulting in
problems when repayment capacities are not able to be met. Haque (Haque 1999) warns
about the indifference of such conventional economic models for addressing environ-
mental issues including those that are ultimately unsustainable. However, while aid and/
or a loan provides for immediate economic relief and encourages investment in key-
specific projects, the borrower often does not encourage the implementation of
a sustainable economic ecosystem strategy to catalyse local societal and economic
empowerment and enhancement. The question then arises as to how to seek investment
in the urban realm, and more specifically in projects of public good in the public domain,
with no visible or tangible direct economic return.
This practice paper suggests approaching this problem by exploring traditional
economic ecosystems that allow the public sector to seek funds to invest in the public
domain. A case study from the City of Port Louis, the capital of the nation of Mauritius,
is discussed profiling how this approach can benefit other comparable cities that are
looking at building economic resilience strategies whilst attracting private investment in
both private projects as well as in the public realm.

2. The urban economic landscape


While businesses are the economic backbone of Central Business Districts (CBDs) and
larger urban areas, it is difficult to guide how private spending can be expended for the
public good. This is because businesses operate, in most situations, in disconnected
relationships to the public realm and any recognition of benefits such realms may directly
or indirectly contribute to this economic gain. This is so because private businesses
operate on individual plots of land, and only interact and contribute to the public sector in
the form of taxes. Such taxes can be substantive in the case of global corporate
businesses (Cook 2009). One can thereby conclude that in order for the public sector
to build capital to invest in the public realm, taxes from private companies are essential
in the process. However, as this is a linear process, collaborative avenues are traditionally
discouraged for planned and cohesive urban developments, and this calls for a need for
enhanced Public-Private-Partnerships (PPP) in a decentralised fashion, while encoura-
ging PPP with both large and small companies.
A new model of operation could be explored with the early engagement of the private
sector in investing in the public domain while reaping economic returns through fiscal
mechanisms. Similar applications have been seen in selected domains in Special
Economic Zones as discussed below.
Urban Research & Practice 3

2.1 Special economic zones


Special Economic Zones (SEZs) have been a vehicle through which emerging econo-
mies have thrived, largely fuelled by the consumer market and the frictionless trade
they require. Defined by geographically designated areas, SEZs are governed by strict
boundaries and special sets of rules and incentives that allow global businesses to enjoy
shared benefits (Allam and Newman 2018a, 2018b). Tax incentives are well documen-
ted through SEZs in various parts of the world and have been proven to attract
investment and create jobs (Titus 2006; Adair, Berry, and McGreal 2003; McGreal
et al. 2002). Because these areas, being officially designated and governed by a set of
rules enforced by governments, there lies an element of trust that is rapidly established
that further catalyses business proliferation inside the designated spatially defined
boundary. Global entrepreneurs have been taking advantage of liberal tax incentives
offered by SEZs to set up world-class operational or business units in these SEZs to
service international markets (Titus 2006). In various nations, fiscal incentives are
applicable for specific projects and ‘Freeports’, but not usually for urban regeneration
projects or for the redevelopment of existing cities or precincts within cities.

3. Case study of the city of Port Louis, Mauritius


With a total population of nearly 120,000 inhabitants, Port Louis, the capital city of
Mauritius is the most densely populated geographical district of the island of
Mauritius with 2,954 P/km2 (Mauritius 2016). Port Louis also hosts the only trade
port of the island and has been the main administrative centre from a judicial,
political and business perspective for more than two centuries (Allam and Jones
2018). However, within the last decade, there has been an emergence of Techno-
parks and privately owned Smart Cities across the island that have opened a new
competitive landscape for businesses and administrative functions (Allam and
Newman 2018b). Such developments have highlighted notable risks resulting in the
loss in business and administrative functions from both state and privately owned
organisations that are leading to an erosion in municipal revenue (Redaction 2017).
This lessening of financial input trickles down to a lessening of budget availability
and thereupon impacts both urban developments and their maintenance. This pattern
may increase urban decay propensity, as has been the case with Detroit in the USA
(Peck 2014). As a demonstration, in the case of the City of Port Louis, more than
95% of municipal revenue is expanded upon administrative ends such as salaries for
its employees. This leaves the urban council with little financial resources to enable
investment in public infrastructure projects (Groëme-Harmon 2018), even though the
economic potential of the city has been hailed by many authors (Redaction 2017;
Groëme-Harmon 2018; Allam and Elahee 2014; Siew and Allam 2017).
The characteristics of the City of Port Louis are unique comprising a vibrant city
with rich historical, cultural and multi-ethnic dimensions that cannot be matched
elsewhere on the island (Ramkissoon and Nunkoo 2011). However, these cultural
dimensions have greatly suffered from the lack of public funds and numerous
heritage buildings are at risk of demolition or irreplaceable deterioration
(Bertacchini and Re 2017). With both public and private sectors losing interest to
invest the capital city, there is a notable trend of urban fabric and infrastructure
decline. To address this trend in the City of Port Louis, and to catalyse urban
regeneration through private investment in the public domain, a National
4 Z. Allam and D.S. Jones

Regeneration Scheme (NRS), which is comprises a set of fiscal and planning incen-
tives, was adopted by the Government of Mauritius in 2018 (Government of
Mauritius 2018), as evidenced in Table 1.
To ensure the densification of Port Louis’ urban fabric, and to further promote
a healthier urban environment, a designated area was delineated where the NRS would
be applicable. Ideally, the Central Business District (CBD) is desired precinct as this
would allow further economic growth through the attraction of commerce and business.
The development of the NRS was influenced by Mauritius’ exploration of Smart City
models that seek to infuse Smart City technologies into existing cities, as opposed to the
contemporary practice of creating new cities. As such, to ensure that this particular
dimension was addressed, and would be applicable to Port Louis, models devised for the
context had to be explored. As such, a Smart City Framework (Figure 1) (Allam 2017)
was proposed that contains the three key dimensions of Culture, Governance and
Metabolism. Further to this, the authors performed a Focus Group inquiry to identify
the desired dimensions that could promote an inclusive urban regeneration process in that
particular context (Allam 2018a). The result of this inquiry was an Extended Smart
Framework (ESF) (Figure 2), where incentives were calibrated regrouping the additional
identified dimensions of Business Support and Collaboration, and further testing in
conjunction with the dimensions of Governance, Culture, Metabolism. Those dimensions
were then translated into fiscal measures to economically incentivise developments
towards those desired outcomes.
Allam and Newman (Allam and Newman 2018a) have demonstrated that quantifica-
tion over a 6-year period, from the application of the NRS to the Action Plan Zones
(APZ) within the NRS, revealed positive results. These results included an estimated
USD 1.18 billion was foreseen from private investments, while USD 32 million and USD
180 million was anticipated for public revenue and from new business ventures, respec-
tively. From the perspective of job creation, it was concluded that some 94,588 con-
struction jobs and 9,210 permanent jobs could be generated.
Thus, the practice of looking at designated areas such as SEZs can be made to work if
the proposed package of incentives is tailored to the local context. While the above was

Table 1. The National Regeneration Scheme (NRS) as proposed in Port Louis, Mauritius
(Government of Mauritius 2018).

1. A property developer undertaking substantial renovation works on an existing building,


demolishing and reconstructing an existing building or providing basement parking within
an existing building will be eligible to the following incentives provided it is completed
within 2 years from the approval date:
1.1 Be eligible to claim refund of VAT on buildings, capital goods, professional fees and fit-out
works;
1.2 An investment income tax credit of 5% over 3 years over qualifying capital expenditure; and
1.3 Benefit from customs duty on import of construction materials, machinery, equipment and
other inputs including on furniture in semi knocked down form on the condition that at least
20% local value addition is incorporated therein.
2. A 5-year income tax holiday on income derived from smart parking solutions and other green
initiatives;
3. Exemption from income tax over 2 years on newly rented space for cultural purposes or to
artists as from the date the plan is approved; and
4. Expenditure on approved renovation, embellishment works in the public realm by private
companies as well as cleaning of public infrastructure will be deductible for income tax
purposes.
Urban Research & Practice 5

Figure 1. The smart framework for Port Louis. Adapted from Allam (Allam 2017).

Figure 2. The extended smart framework.

based on econometric forecasting models, it is noted that as of March 2019, a quarter of


the projected investment has already been actualised in Port Louis under a 1-year period
(Le-Mauricien 2019). Interestingly, attracted investment, particularly from the private
sector, is seen to being injected in both private and public domains, as the fiscal
mechanisms outlined in Table 1 provides positive and attractive investment tax rebates
for investments in the public realm.
6 Z. Allam and D.S. Jones

4. Discussion and conclusion


Therefore, to encourage private investment, it is argued that there must be some expected
economic return, which is difficult to achieve when investment in the public realm is
sought. This is because those affected areas are usually discouraged by commercial
operations and kept as an area for the public good. Such areas in the public domain
include, amongst others, roads, drains, public parks, forests, reserves, rivers, and bea-
ches. It is proposed that an Action Core Zone (ACZ) is geographically defined where
a set of fiscal incentives are proposed and applied, and its designation can be guided by
the limits of the zone and the aims of the zone requiring significant public investment or
requiring densification. This strategy will naturally guide investors to relocate to those
areas and to invest with economic returns in mind.
While this approach can be considered fragmentary in its strategies towards attracting
investments only in pre-defined zones, and thus leading to the urban decay of peripheral
ones, the authors’ argument is that this is a necessary transitional step towards urban
regeneration. Therefore, in the case of the City of Port Louis, which is facing unfair
competition from incentivised emerging cities, the City is at present failing in retaining
businesses and residents. However, there are other mechanisms like Transferable Air
Rights Development, operated through specialised platforms, that can be devised as
secondary measures to ensure that peripheral zones are not penalised (Allam 2018b;
Allam and Jones 2019).
The case study of the City of Port Louise on the island of Mauritius provides key
ideas on how to achieve urban regeneration through this practice. As this approach has
been proven successful, there is merit in the expansion of this approach to other urban
areas across Mauritius and encompass the larger dimensions of the urban ecosphere.
This practice paper thus introduces the idea of expanding the concept of Special
Economic Zones to catalyse urban regeneration while attracting both foreign and local
investment in areas that would not ideally be at the forefront of private investments. By
doing this, positive aspirations for public infrastructure can be accelerated through
a strategic injection of capital from private investors, who are afforded investment
reimbursement from both direct and indirect economic returns, while the users of the
city get to enjoy better and more upgraded infrastructure at no cost from increased
municipal taxes.

Disclosure statement
No potential conflict of interest was reported by the authors.

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