The Kavi special economic zone: growth versus development
In 2018 the government of a low-income country created a special economic zone (SEZ) on 400 ha of farmland near a port. By 2024 it contained 46 garment factories employing 38,000 workers, 72% women, at an average wage of $4.20 per day. Exports were $310 million in 2024, up from $40 million in 2018. Only 9% of raw materials are sourced locally; most fabric is imported. The zone uses 60% of the region's electricity and treats only 30% of its wastewater; tests show elevated lead and dyes in the river 2 km downstream. The government spent $180 million on roads, power and a treatment plant that is not yet connected. Former farmers received $2,500 per hectare, but many now work as security guards or street traders. A local NGO reports that women workers often leave after five years because of childcare costs and shift patterns. National GDP growth rose from 3.1% to 5.4%, but the UN Human Development Index improved only from 0.52 to 0.54.
1. Assess the economic benefits and the social and environmental costs of the Kavi SEZ. Use the figures to support your judgement.
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The benefits are substantial in headline terms. Exports rose from $40 million to $310 million, a 675% increase, and 38,000 formal jobs were created. At $4.20 per day and about 300 working days, a worker earns roughly $1,260 per year, which is a cash income that may not have existed in farming. GDP growth rose from 3.1% to 5.4%.
The costs are also clear. Only 9% of raw materials are local, so the zone has weak linkages to the domestic economy: most value is imported and profits may be repatriated. The zone uses 60% of regional electricity, which may crowd out local households and firms. Only 30% of wastewater is treated, and lead and dyes are found 2 km downstream, creating a health and livelihood cost for fishing and farming communities. Former farmers received $2,500/ha, but many ended up in insecure work. Women leave after five years because of childcare and shifts, so the jobs may not be sustainable. The HDI rise from 0.52 to 0.54 is small relative to the GDP growth, suggesting that growth has not translated fully into well-being.
2. Explain why GDP growth may overstate development in this case.
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GDP measures the value of output produced, not who receives it or what costs are imposed. The SEZ's export growth raises GDP, but if most fabric is imported (only 9% local sourcing) and profits are repatriated, a large share of the value may not stay in the local economy. The 38,000 jobs pay about $1,260 a year, and many former farmers moved into insecure work, so income gains are uneven.
GDP also ignores environmental depletion. Untreated wastewater and lead pollution are not subtracted from GDP, even though they impose health costs and reduce fishing or farming output. Unpaid childcare, which the NGO identifies as a reason women leave, is not counted either. The small HDI improvement (0.52 to 0.54) supports the view that development is broader than GDP: education, health, gender equality and environmental quality have not improved at the same rate as exports. Therefore GDP growth is real but partial; it overstates development if used alone.
3. Recommend two policies to improve the SEZ's contribution to development. Explain how each would work.
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- Introduce a local-content and supplier-development policy. Require factories to source a rising share of fabric, packaging and services locally, and provide training and credit to local suppliers. This would raise the 9% local sourcing figure, create multiplier effects and keep more value in the country. It needs phased targets and monitoring so factories are not simply penalised for imports they cannot yet replace.
- Enforce wastewater treatment and provide childcare. Connect the treatment plant, set discharge limits and monitor the river 2 km downstream with published results. At the same time, fund workplace or community childcare and predictable shift patterns. This would reduce the lead and dye pollution and help women stay in work beyond five years, improving health, gender equity and household income. The polluter-pays principle could fund part of the monitoring, while the government uses some of the $180 million infrastructure budget to complete the plant connection.