Industrial ambitions

16 Sep 2020

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PRIME MINISTER Imran Khan’s declaration of Pakistan entering a new industrialisation phase has to be tempered with reality. There’s no doubt that the opportunities are enormous as he pointed out while inaugurating the Rashakai Economic Zone, one of the four priority SEZs being developed under the CPEC initiative. Yet there’s a lot of spadework that still has to be done before the fruits of the venture can mature. Pakistan has pinned too many hopes on SEZs. For example, the government is expecting massive Chinese investments in these zones. Global experience shows that SEZs, geographically defined and delimited industrial areas, are an important vehicle for wooing investments by offering investors attractive fiscal and policy incentives to boost exports and encourage transfer of technology. But the experience of various countries also shows that the development of industrial estates and incentives are never enough to attract investors — foreign or domestic. That is true for Pakistan as well.

In spite of implementing an extensive legal framework through the SEZ Act of 2012 and later amending it in 2016 to make it more attractive for investors, the government is struggling to get the desired results. The main reason is its failure to ‘insulate’ potential investors from the jurisdiction of the country’s state institutions and laws to give them a sense of security. That means that potential investors will enjoy certain incentives and a few other facilities their counterparts operating outside the zones don’t have, but would continue to face an otherwise regressive business environment. If the government wants the SEZs to work and bring in FDI, especially in the case of Chinese firms looking to relocate outside their country, it will have to convert these SEZs into ‘industrial islands’ with transparent, strict and independent rules of business for facilitating and regulating investors. Without protecting investors from the overall, business-unfriendly environment and the reach of state agencies, it will be difficult to attract investment, especially FDI.

Published in Dawn, September 16th, 2020