Learning from the successes of Asia (Part 3)
The utility of incentives in the establishment and growth of port-based logistics centres was highlighted in the UN's 2002 study 'Commercial Development of Regional Ports as Logistics Centres'. In a highly competitive environment, with firms assessing their investment options, it is not enough to rely on geographical and other locational advantages. Noting the characteristically long construction periods and the size of the investments required before operator profits are likely to be realised, the study argued that tax incentives and other supporting schemes are necessary to attract multinationals and international service providers.
As the countries of Asia positioned their ports as logistics centres, the incentive tools employed included pioneer status, loan guarantees, credit insurance, low interest financing, low tax rates (e.g. in Hong Kong no tax on interest and dividend income, while in Singapore a rate of 10% tax on juridicial persons levied, and in Taiwan's export processing zones, total exemption from import tax, commodity tax and trade tax).
The incentives may comprise more than tax and related concessions: port operators are also recommended to accept delayed financial returns when providing land for logistics centres. Typically, land for operations in ports tend to be quite high, a fact that the study suggests results in a natural conflict between "governments or ports trying to provide the land at a fair value (while) MNCs and logistics companies... try to lower the value to a level where they can assure making reasonable returns" A number of ports, again typified by Hong Kong also addressed the reality of high land prices in port areas by electing to develop high-rise facilities that are able to house scores of logistics operations - in so doing reducing the costs per operator.
Next: What type of financial infrastructure is required?