Dozens of SEZs Targeting Biotech to Open Post-COVID in Emerging Markets

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biotech and SEZ

Photo credit: Depositphotos

By Thibault Serlet, Co-Founder and Chief Researcher of The Adrianople Group

In the wake of the COVID-19 pandemic, dozens of governments have announced programs to offer tax incentives for biotech companies in economic zones. In the first quarter of 2021, the governments of PakistanSouth Africa, and Jamaica have all announced the creation of multi-billion dollar economic zones targeting the biotechnology sector.

Special Economic Zones (SEZs) are business parks which have been given government incentives in order to attract businesses. These include tax incentives, subsidies, and preferential loan treatment. There are more than 7,500 SEZs located in 70 countries worldwide. SEZs cater to a wide variety of industries, ranging from tourism to metal refining.

A recent study reported that there are 82 SEZs already catering to the biotech industry worldwide. The study suggests that, due to COVID-19, as many as 24 more might open within the next five years.

SEZs play a major role in the industrial development strategies of many emerging market economies. Traditionally, SEZs focused on the manufacturing industry. More recently, the industry has tended to focus on the service industry such as office parks or tourism. COVID-19 and the rise of teleworking has made the service industry less economically viable. The increased publicity that biotechnology has received has made it one of the most popular industries that post-pandemic zones are targeting.

The most famous biotech / genetic engineering zone is Genome Valley, located in Hyderabad, India. Genome Valley is the vaccine capital of India – one third of all vaccines in the country are produced there. The valley itself consists of three adjacent SEZs, each of which enjoys a litany of tax and regulatory incentives. 200 biotech companies are located in these zones, including many of India’s largest firms in the sector such as Aurobindo Pharma, Alembic Pharmaceuticals, and Laurus Labs.

India is also home to many smaller, less famous pharmaceutical zones. One such zone is the Keystone Knowledge Park located in Haryana, India. The park, which opened in 2017, caters to biotechnology and pharmaceutical research companies. Biotech companies located in the zone enjoy a wide variety of incentives such as temporary tax holidays, tariff exemptions for imported equipment, and a one stop shop where they can file all of their government licenses. The park currently offers 100 lots to various tenants.

The South Korean Yeongdeungpo Smart Medical Zone, which also opened in 2017, likewise caters to the biotech industry. However, Yeongdeungpo targets a very different segment of the market – medical tourism. While biotechnology research plays a key role, it is secondary to medical tourism. The zone is home to 16 hospitals and 4 hotels. The most notable tenant is the Marriott hotel. Roughly 6,000 foreign patients visit the zone per year, mostly from China. The zone provides special visas for foreigners seeking medical tourism.

Many more zones cater to a wide portfolio of industries, with biotech playing a small but significant role. The Saint Petersburg SEZ, in Russia, is one such zone. The zone accounts for $800 million USD worth of private sector investments in Russia. Like most other SEZs, tenants enjoy a wide variety of tax breaks. 23 out of the zone’s 59 tenants are pharmaceutical and biotech companies. The zone also partially subsidizes rent for high tech companies.

By far, the largest biotechnology SEZ in the world is the Hainan Medical Tourism Zone in China. The massive $60 billion USD zone is only partially operational. It enjoys many incentives ranging from the usual tax breaks and visa concessions to regulations giving patients the right to try untested experimental drugs. When the zone opens in 2024, it will likely be the largest pharmaceutical park in the world.

Many of these zones are doomed to remain empty. The Adrianople Group study found that 44% of SEZs have serious vacancy problems. Critics argue that giving companies tax incentives has the potential to reduce government revenue without yielding significant benefits. Zones that are publicly, rather than privately, funded may unduly burden taxpayers with additional costs that might yield any tangible results.

The opening of new biotechnology zones around the world as a result of COVID-19 is bound to have a significant impact on the industry. Biotech companies may soon come to expect incentives as a standard requirement before finding sites for relocation. The incentives also will reduce risks for investors, increasing the access firms have to credit to finance expansion projects. Finally, biotech research will play a more important role in the industrial development strategies of many emerging market countries.

Thibault Serlet is Co-Founder and Chief Researcher of The Adrianople Group, creators of the Open Zone Map which is the only comprehensive map of every Special Economic Zone (SEZ) worldwide.