Betting on SEZs — again

November 12, 2019

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Business community is desperately waiting for government measures that will reboot the economy. — Dawn/File
Business community is desperately waiting for government measures that will reboot the economy. — Dawn/File

The business community is desperately waiting for the government to initiate measures that will reverse the downward spiral and reboot the economy. They believe special economic zones (SEZs) can play a catalytic role in attracting investment, creating jobs, boosting exports and reviving growth.

For SEZs to deliver, the relevant law will have to be tweaked to make it simple and more responsive to investors’ needs, they believe. The SEZ Act of 2012, amended in 2016, limits the scope and access of special zones to certain categories and is ambiguous on the mode of development in zone locations.

They find the current pace of progress on SEZs too slow and the direction far from clear. The economic merit, not politics, should guide the policy framework and the order of preference for initiating work on the nine zones identified, they argue. Without naming names, they hinted at the inclination of the government to take up projects in Khyber Pakhtunkhwa first despite natural advantage for industrial development in other provinces. They were also critical of the exclusion of the Ministry of Industries and Production from the exercises surrounding SEZs.

Leading businesses are not particularly excited about the Rashakai economic zone on the outskirts of Peshawar. They look at the Dhabeji special economic zone with interest because of its proximity to the port and the commercial nerve centre of the country i.e. Karachi.

They regretted that the government seems completely preoccupied with revenue generation and import suppression. The attitude, they think, has compounded the problems for productive sectors of the economy.

Hit hard by the decline in growth, they dread social unrest owing to rising inflation and growing joblessness in a sagging economy.

The government is preoccupied with revenue generation, which is compounding problems for productive sectors of the economy

Last week, the Pakistan Business Council (PBC), an advocacy platform of the corporate sector, circulated a document named “Policy Brief — Key Recommendations for a SEZ Framework”. It was based on a study of the experience of dedicated industrial zones across five countries — China, India, Bangladesh, Ethiopia and Cambodia. The PBC recommended re-orienting the SEZ policy by making affordable land and infrastructure in a plug-and-play mode, proximity to port, labour, road and rail networks and clusterisation the hallmarks of SEZs. The current framework focuses on fiscal incentives for export and import substitution industry.

Talking to Dawn, PBC CEO Ehsan Malik did not hide his desperation for the initiation of measures that signify the seriousness of the PTI government about the promotion of industrial activity to revive growth. He saw complete neglect of the Ministry of Industries and Production under successive governments as a reflection of flawed economic priorities that led to pre-mature de-industrialisation.

Aware of the fate of businessmen who dared to call a spade a spade publicly, and probably fearing to sound too critical of the government in explaining the PCB’s position, Mr Malik started the conversation with generous appreciation of the PTI government for being more accessible to the business elite than any earlier government. How this access has helped business or the economy was not clear.

Mr Malik considers the government-private sector interaction crucial for confidence-building. “It will be useful for the government to ask representatives from each sector the following: one, what they want the government to do differently; and two, what they will do differently. The government should then look at the shift of the needle before it firms up a sector-specific strategy for growth.

“To promote industrialisation for growth, it is important for the government to understand the hurdles stopping serious investors from committing resources. The 17 recommendations we made in the SEZ document (available on the PBC website) focus on the removal of all key roadblocks discouraging investors.

“It starts with the provision of affordable land that can only be used for the project it is acquired for, leaving no scope for speculative real estate activity. The location of the zone should be near either the source of raw material or logistic advantage. A zone in the middle of nowhere, no matter how equipped, will not serve the purpose,” he said.

When asked why the PBC ignored the conditions on investors operating and drawing special benefits in industrial zones that India implemented. Mr Malik said that Pakistan was too investment-hungry to impose conditions. “India is another story. It is far ahead of Pakistan in industrial development. Investors are keen to enter the Indian market so the government gets away with investors conforming to their wishes. It is different here. In Pakistan, even locals are reluctant so bringing foreign investment is way difficult.”

In India foreign companies in SEZs are obligated to plough back at least 50 per cent of their profit in the country.

“The decision of future investment depends on the fate of the current investment by foreigners. If returns are good, the investor will invest more. I don’t think it will be wise to impose conditions when foreigners do not appear too keen,” he responded.

Sindh Board of Investment CEO Abdul Azeem Uqaili was upbeat. He told Dawn he expects the Dhabeji special economic zone to be the first one to take off as the team in Sindh has worked hard on it.

“We have acquired the land and started the open international bidding process for its development. We are sufficiently happy with the response and hoping for a straightforward, transparent and interference-free process ahead. We are already receiving queries from serious national and foreign investors. I am confident that after the initial delays because of changing policies at the centre, we have reached a stage from where the journey should be relatively smooth.”

He agreed that the SEZ Act needs further amendments to suit the situation. Dawn’s attempts to get feedback from the premier’s adviser on commerce, Abdul Razak Dawood, Board of Investment (BOI) Chairman Zubair Gilani, BOI Secretary Omer Rasul, Industries and Production Secretary Amir Ashraf Khawaja and other government functionaries proved futile.

Published in Dawn, The Business and Finance Weekly, November 12th, 2019