As per the Special Investment Facilitation Council’s (SIFC), all issues in our Special Economic Zones (SEZ) regime can be traced to the multiplicity of agencies that give investors the runaround. Dig a little deeper, and you realise that the majority of these agencies are provincial since industries, labour, and environment are devolved subjects.

Now, going back to the SEZ law, you will see that the primary incentives for investors, ie taxes, holidays and duty exemptions, are paid out of the federal government’s coffers; herein lies the conflict.

It seems that central/provincial wrangling has reached a boiling point with the federal government planning to introduce an amalgamated SEZ regime to regulate and govern Export Processing Zones (EPZ), SEZs and Special Technology Zones under one law and one authority. The final goal is to offer investors a single avenue for government services through the so-called one-stop-shop.

In order to achieve this, the federal government is seeking to re-centralise all industry-related functions through a constitutional arrangement within the limits of SEZs. These changes — if they go through — will not only impact industrial policy but also open a new chapter in the centre-province relationship.

Coordinating regulatory approvals across provincial and federal entities has made the SEZ ‘one window’ hard to achieve, hindering industrialisation

Keeping the politics of decentralisation aside for a moment, let us see if this noble-sounding objective is indeed the panacea our government thinks it is.

The idea of offering services under a single window is a key element of successful SEZ programs. It is a SEZ best practice to phase out incentives, such as tax holidays, and compete on offering world-class services instead.

So, if an investor plans to go to China today, expecting large tax breaks, they would be disappointed. However, the Chinese will offer the ability to get every single approval from the same place. This means that not only does our investor get his utility connections, environmental approvals and necessary registrations sorted through a single window, but something as specialised as patent registration will also be done under the same roof.

It is not an exaggeration to say that not a single facility like this exists in our industrial estates. And, until we develop a habit of setting up such facilities, our efforts to bring meaningful investment to the country will bear little fruit.

Admittedly, coordinating regulatory approvals across provincial and federal governments has made these single windows harder to achieve. Moreover, a lot of capacity building is required at the provincial and local levels to offer passable governance and regulation to investors.

But, why must government services be unified at the federal, or even at the provincial level? After all, the Chinese govern their SEZs through municipal-level committees which have representation from all agencies. Not only do these committees coordinate all inter-agency governance, but they also have quasi-legislative powers, which allow them to innovate and experiment.

Even more importantly, when the Chinese set out to build their first five SEZs in Guangdong and Fujian, these locations were selected partly because they were physically as far away from Beijing as possible.

Accordingly, why can’t the federal government meaningfully devolve SEZ regulation instead of centralising it? EPZs, governed entirely by federal departments, serve as a lesson in how not to do things. Established in the 1980s, our EPZs not only failed to improve export competitiveness but remained ineffective in fostering backward industrial linkages with the national economy.

Indeed, the experience of SEZ law itself is a case against centralising these powers. For example, the process of SEZ approvals is marred by delays as decision-making happens at the highest level.

The Board of Approvals — a high-powered body which approves SEZ applications — comprises the prime minister as chairperson, provincial chief ministers, six federal cabinet members, the state bank governor and other high-ranking officials as its members.

The problem with this composition is that these forums rarely meet because senior government officials are hardly available. Therefore, it is not surprising that in the past 12 years, the Board of Approvals has only met eight times, even though the law requires that the board meet twice a year at least.

This means it can take more than a year to approve an SEZ application. Such high-powered forums can work in favour of SEZ development if there is political ownership at the highest level. What Pakistan needs is both: political ownership and a decentralised system for processing approvals, extending services, and regulation.

To conclude, SIFC’s diagnosis that our current regulatory framework does not promote industrial growth is correct. But, the solution does not lie in re-centralising devolved provincial functions.

Instead, policymakers should meaningfully devolve regulation to provincial and local levels with planning controls written into the federal law. On top of this, cross-party ownership is key to moving the needle on industrialisation. Political ownership will pave the way for a radical reform agenda which is a prerequisite to unlocking investment and further industrial growth.

The writer is the director of the Sindh Government’s Doing Business Reform Implementation Unit.
X: @abdullahz88

Published in Dawn, The Business and Finance Weekly, June 10th, 2024

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