A national annual budget, beyond a maze of dry and drab figures on annual revenue and expenditures, represents a prime policy statement by the government on national issues, directly impacting the economy and the society.

In a modern economy where private sector is predominant in the production of goods, state budget has a prime-pumping effect on the macro-economics of the country.

Budget is a statement of priorities and preferences of the party in power as to the contents, contours and direction of economic change and development to be set off. It is also an expression of relative weightage to diverse state functions, i.e. security, law & order, economic development, health, education,etc.

The available information on macro-economic indicators in the run-up to the finalization of the Federal Budget 2003-04, compared to a year back, represents an up-beat mood. The almost conclusion of Iraq War lends greater reliability for planning of investments by the multinationals worldwide, with vital trickle-down effects on the economies of developing countries.

The national scenario offers a rather sanguine picture over the past years. Our foreign exchange reserves would almost be double on the eve of national budget compared to a year back. Rabi harvest is all set to give a bumper wheat crop. There has been a very good cotton crop, providing the basic raw material to textile sector as prime contributor of foreign exchange earnings. Sugar output has hit record, surpassing the highest-ever output of 3.55 million tons recorded in 1997-98 and expected to touch the figure of 3.70 million tons.

Cement manufacturing sector, in view of the on-going reconstruction work in Afghanistan, can look to a better year. Concessions and favourable attitude by the Western countries concerning foreign debts and their service in the aftermath of 9/11 events and subsequent war on terrorism, should provide greater fiscal breathing space by setting aside larger resources for development against last year. These, combined with lower interest rates decreed during the current financial year operative in case of domestic public debt, may represent substantial resources to cater to the development of economic infrastructure, human resource development and integration of the backward areas and under-privileged classes into the economic mainstream.

It is hard to forecast how our national economy, especially foreign trade sector, would fare while confronting the WTO regime. It is in this context that the up-coming budget assumes much higher importance than ever before. The budget 2003-04 must contain policy guide lines, strategies and range of actions to forestall the negative impact of free trade regime on our international trade and agriculture, and to help open up new avenues for expansion, diversity and up-gradation of our exports generating capacities, as source of foreign exchange earnings.

The budget is required not only to improve productive sector generating exports, but also the logistics sector to reach markets abroad economically. Let the history of economic development of the countries that have risen, within a span of three decades in the 2nd half of last century, from a similar stage of under-development, as ours, to the position of global economic players, be our guide.

Whether it is the Asian Tigers or Cubs, formidable China or Mexico, it is the aggressive export promotion conducted within the frame-work of economic zoning, i.e. SEZ (special economic zones) in China, maquiladoras (industrial parks along common border between Mexico and the USA to produce and process exports from raw materials and components imported under bond from the USA) in Mexico, free ports, free trade zones, export processing zones, industrial parks etc. in others— supported by requisite regulatory and legal frame-work, and most important of all, political will and ability of the government.

In our immediate region India, Sri Lanka and Bangladesh have set up economic zones regime as an effective and potent instrument of economic growth and development. Let the coming budget feature economic zoning as a comprehensive strategy for development and diversity of our exports-related manufacturing sector, along with equally comprehensive package for agricultural sector with reference to international market as source of supply and as point of sale, by setting aside adequate resources for initiation of the scheme in a tangible manner.

The question can be raised: is there a need for economic zoning as an instrument to develop and promote export-based manufacturing and processing capacities, while we have in existence the Export Processing Zones Authority (EPZA) operating Karachi EPZ for the last two decades - a number of others are planned and some are about to start operation at diverse locations throughout the country.

Regrettable as it may sound, similar zones were established in other countries with clear purpose to contribute substantially to the national export portfolio as source of foreign exchange earnings.The Karachi EPZ, so far the only operational unit under EPZA, has yet to record gross exports worth $100 million in a single year during two decades of its existence, i.e. about 1 per cent of our total exports, avowed commitment of the present management of EPZA notwithstanding.

Compare this with Bangladesh that started with this export promotion model about the same time as ours, where recent EPZs contribution to exports is stated to be around 20 per cent. Even tiny Jordan can boast of seven Qualified Industrial Zones (QIZs) which can export to the USA duty and quota-free, probably as a reward for King Abdullah for being tight with the USA.

At of the end of last year, investors - mostly from Asia, the US, and Israel - had invested $500 million and created 18,200 Jordanian jobs in the QIZs. Our misfortune surrounding KEPZ can be traced to the fact that over last 20 years neither the military governments nor the political governments in Pakistan found it worth while to review its dismal performance to reorganize and restructure it, enabling it play its due role that underwrote its establishment.

In the recent past we have heard the President, the Prime Minister and Minister for Finance, about establishing free port/free zone at Gwadar. The chief minister of Punjab has, on a number of occasions, indicated to develop special zones/areas to accelerate export-based industrialization in the biggest province of the country. What is required, as the first step, is to create physical, institutional and legal conditions to this end, i.e. economic zoning as model for export-oriented manufacturing and industrialization to result in substantial improvement in our export performance. From conceptualization of such zones to their becoming productive to contribute to the export economic performance the lead-time would certainly be beyond fiscal 2003-04, but the beginning must be made soon.

Since productive investments would come primarily from the private sector, it would be highly desirable that private sector is allocated a pro-active and substantial role in the operation and management of these zones; state’s role as the facilitator should be confined - apart from providing basic infrastructure through budget allocation - to regulatory, monitoring and coordination aspects. Most important and recurring feature would be the marketing of these zones to potential investors from home and abroad.

There exists a sub-committee of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on processing zones. This committee, representing private sector of Pakistan, can be actively involved in the formulation of the scheme on economic zoning and can be an effective forum to project and publicize the zones to the private sector nationally and internationally.

Pakistan is designated as a low-level equilibrium economy, with annual economic growth rate that generally is not far higher than the annual rate of population growth, implying a negligible or low increase in per capita income. How to break this vicious cycle! Wooing foreign direct investments (FDI) is an act of faith and trust in the future of the country, political stability and the legal institutions.

With fragile political structures and social volatility, not much can be expected from abroad in terms of investments. Economic zones can be instrumental in winning the trust and confidence of the investors, both from home and abroad. Economic zones are like laboratories where one can experiment with different economic, social and legal measures in the form of incentives, concessions, promotion and facilities to showcase government’s policies.

That is how China has benefited from SEZ and has come to be the most coveted destination of FDI that has become, over the time, the most over-riding mode of trade in capital flows from abroad, as opposed to trade in merchandise.

A typically developing country lacks capital. It may have plentiful labour, but workers happen to be mostly less educated and have less training in industrial skills. Property laws and rule of law may be unreliable. It may lack economic infrastructure necessary to get the most out of the new investment. A developing economy is required to create conducive conditions for wooing FDI to break the logjam of poverty and stagnation. It is here that the national budget must allocate resources to this end.

As the history shows, success of zones in optimizing contribution to export sector stands in direct proportion to the importance and priority attached to them by the national political powers, by owning the cause and mission of economic zones and ensuring adequate level of resource allocation for their development and expansion.

For Pakistan economic catharsis lies in building progressively expanding and up-scaling exports-generating capacities into the strategic economic plan to march in the direction of economic take-off. The best option to this end is a decision at the highest level to select a number of locations in all the four provinces with adequate land - to meet immediate as well as future requirements of industrialization and commercial activities - for export-processing zones, with direct and intense involvement of the national head of the government.

To start with, we may upgrade the already existing facilities within the parameters of export processing or free port/free-trade zones. Apart from reforming and restructuring the EPZA focus can be fixed on vast developed areas at PQA (Port Qasim Authority), owning 12,000 acres of land, 50 yards above high-water mark with direct access to comprehensive modern international port facilities, and well-integrated with inland transport network and supply lines for smooth transport of indigenous raw materials and human resources- an ideal combination for a mega export-boosting world-class project. Same should be applicable to area around Gwadar Port to be declared as Free Port. Side by side developing physical infrastructure and facilities constituting a processing zone in the public sector, there is need to win over customers through aggressive marketing, willing to stake heavy investments to meet the purpose of these zones. The budget 2003-2004 must contain provision for that.

Apart from allocating resources for initial phase of economic zoning for economic infrastructure, budget 2003-2004 must also make allocation for the development of human resources to provide manpower to these zones with required skills and training, professional qualifications and expertise.

In a developed economy like the USA logistics cost constitutes on average 10 per cent of the GDP; for a developing country like Pakistan a rationally structured efficient and cost-effective logistics industry is the need of the hour to promote our international trade. This is very pertinent in view of the potential Pakistan holds as a multi-modal transport hub for foreign trade of land-locked Central Asian Republics and Western China in transit through its seaports. In this connection Cargo Village planned to be developed by Karachi Port Trust in the near future, can play a key role.

The Cargo Village at KPT will represent an up-scale facility for storage and warehousing of the imports and exports and can be right incentive for the multinationals to establish their regional distribution centres in the Cargo Village, apart from integrated state-of-the-art bonded warehousing for our national sea-borne trade.The government has yet to enact necessary legislation to promote multi-modalism - the logistics pattern pre-dominant in international trade - including provisions to govern liability insurance in international movement of trade. Satisfactory resolving of such issues would be a positive contribution to promote our export sector.