With eyes fixed on the bonanza that the China-Pakistan Economic Corridor promises to bring, a comprehensive plan has been devised to attract investment, primarily in import substitution manufacturing in the areas of domestic advantage.
According to the Board of Investment (BoI), consumer items, most of which are imported from China, stand first in line to be encouraged at the SEZs.
The $12.099bn import from China in 2015-16 shows a big scope for import substitution as most of the imported products require simple technology.
Electronic appliances, rubber tyres, pharmaceutical items, plastic toys, tupperware, earphone, bulbs, handbags, stationery — are already being imported from China in bulk.
The BoI is targeting foreign direct investment of $24bn for the next three years.
The plan aims to set up nine Special Economic Zones (SEZs) across the four provinces and special areas. This is part of a policy to reduce external vulnerability and tackle the chronic balance of payments issue.
The plan aims to set up nine SEZs across four provinces and special areas as part of an import substitution policy to reduce external vulnerability and tackle the chronic balance of payments issue
Pakistan spends millions of dollars every year on importing consumer items like value added food products, personal care, home appliances and other household items.
The import of selected consumer goods surged from $1.283bn in FY 2013 to $1.749bn in FY 2015.
In the early 1980s, the import substitution policy was replaced by export-oriented industrialisation which instead created an import-oriented economy.
In this background, the BoI has identified a total of 41 sites in the four provinces for SEZs to be connected with the CPEC. The list of these zones was shared with the Chinese authorities.
A senior BoI official said that consultation has been initiated with all stakeholders, including the provinces, for finalising an import substitution incentive package for industries in these SEZs, applicable to both local and foreign investors.
The ministry of industries and production has already identified industrial sectors and sub-sectors. “All these are in the draft stage and have not been finalised as yet”, the official said, adding “We have requested the Chinese authorities to inform of their expectations from the package as well”.
Under the SEZ Act 2012, the government can offer an income tax holiday for 10 years along with duty exemption on machinery imports.
So far seven SEZs are operational in the four provinces. Products produced in the SEZs are mostly consumed in the domestic market.
The SEZs listed as priority are Punjab-China Economic Zone, Bostan Industrial Zone (Balochistan), China Special Economic Zone, Dhabeji, Thatta (Sindh), Rashakai Economic Zone (Khyber Pakhtunkhwa), Moqpondass SEZ (Gilgit-Baltistan), Bhimber Industrial Zone (Azad Jammu and Kashmir) and ICT Model Industrial Zone (Islamabad).
The official said the government will declare all these zones as SEZs after the completion of all formalities. Under the law, the government can declare any area of more than 50 acres as a special economic zone.
According to the BoI official, the government will provide gas, water, electricity and other facilities in these zones.
The industries to be set up in the SEZs can also export their products especially to Central Asian States and Middle East. The duty and taxes paid on raw materials will be refunded in case of export proceeds.
Published in Dawn, Economic & Business, March 13th, 2017
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