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CPEC SEZs: myth and reality

Updated May 22, 2017

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Apparently inspired by the ‘miracle of Shenzhen’, the government of Pakistan is all set to establish nine special economic zones all across the country.

The nine zones include one located in each of the provinces, one model zone in the capital territory, Moqpondass in Gilgit-Baltistan, Mohmand Marble City in FATA, Bhimber Industrial Zone in AJK, Industrial Park on Pakistan Steel Mills Land at Port Qasim near Karachi under federal government control.

The idea of a special economic zone (SEZ) is to establish a specific area of land to promote industrial growth by providing special concessions in tax and economic policies.

However, the idea of SEZs to increase GDP, create jobs, promote trade and foreign direct investment is easier said than done. Though many have tried, most SEZs failed to deliver on their promises, including the recent Shanghai Free Trade Zone — established in 2013 and focused on finance — and SEZs established in the Maharashtra state of India since 2005.

Like the rest of the world, with few examples of successful industrial clusters, Pakistan does have its share of successful industrial clusters including Sialkot surgical goods industry; Gujarat ceramic/pottery Industry; Faisalabad readymade garments manufacturing industry and Khyber Pakhtunkhwa marble industry.

What can work: How to turn urban areas into engines of economic growth?

Pakistan can learn from the Chinese Shenzhen experience. According to the Chinese Government report in 2015, Shenzhen is a major financial centre in southern China with a population of over 18 million. The city is home to the Shenzhen Stock Exchange as well as the headquarters of numerous high-tech companies.

Shenzhen has one of the busiest container ports in the world. From a fishing village, it is now an industrialised, urbanised and modernised city with a GDP of over $100 billion.

Typically, the success of SEZs relies on many factors, mainly a combination of tax and tariff incentives, fast and hassle-free custom procedures, links with local suppliers, growers and the global market and most importantly, infrastructure in terms of quality roads, railway and ports.

While it is not clear how much these SEZs will add to the economic growth of the country, the economy will forgo the much needed revenue as the current tax-to-GDP ratio is just at 12.4pc.

A set of policies and business friendly bureaucracy is a prerequisite for the success of SEZs, among a number of challenges.

First is the governance challenge: how to overcome political influence, inefficient bureaucracy, coordination failures among different stakeholders and corruption?

Pakistan’s economy is ranked 144 out of 190 economies in terms of the ease of doing business ranking prepared by the World Bank.

However, the real test of these SEZs will be their role in establishing urban-rural linkages to help rural transformation which shall be reflected through improvement in the quality of the lives of the poor.

To ensure inclusive growth, the SEZs must target sectors where the poor live and work (eg. agriculture) and use the factors of production that the poor possess.

The efforts of the KP government are commendable in this regard.

It’s Planning and Development Department has chalked out one such project entitled ‘Khyber-Pakhtunkhwa-China Sustainable Donkey Development Programme’ to attract Chinese investment in the province’s agriculture sector.

The donkey is a highly valued animal in China whose hide is dear and is used in medicines. Such a project is an example that has potential to benefit the rural economy and the people living there.

— Dr Abdur Rehman Cheema is a development practitioner and academic based in Islamabad arehmancheema@gmail.com

— Muhammad Haris is a programme officer at the China Study Centre, COMSATS Institute of Information Technology, Islamabad.
muhammadharis@hotmail.com.

Published in Dawn, The Business and Finance Weekly, May 22nd, 2017