An insight into Special Economic Zones

Engineering Post Report

Special Economic Zones (SEZs) were established in many countries  as testing grounds for implementation of  liberal market economy principles. While viewed  as economic policy  tools for enhancing  the acceptability  and credibility of industrial transformation policies, attracting domestic and foreign investment and also for the opening up of the  economy, SEZs also seek  to promote  the value  addition  component in exports, generate  employment, encourage  import substitution as well as  mobilize  foreign exchange  in the countries for Balance of Payment Support. Many developing and the developed economies have established economic zones for the regional development and prosperity, aiming at creating  spillovers  for the economy  outside  the zones, quite successfully.

SEZs, an industrial policy tool that depends on the attraction of local and foreign direct investment  (FDI), data indicates continue  to multiply and diversify  all over the world. The UNCTAD’s World Investment Report  published in 2019, had elucidated that more than  5400 SEZs exist in nearly 150 countries, increased from 4000 SEZs in2015, showing growth of 35  per cent. SEZs  not only serve  as a policy tool  for FDI attraction but also FDI competition  across the world, with many diverse  incentive packages being offered to entice direct investment.

 SEZ policy objectives and type differ  substantially among the  economies at different stages of what UNCTAD’s World Investment  Report 2019  to refers to as the development ladder. In developed economies, most SEZs are custom-free zones that provide  relief from tariffs, and the administrative  burden of  customs procedures, thereby  providing  support  to sophisticated  cross-border     value chains. Developing  economies often establish SEZs to attract FDI, in order to build, diversify and upgrade the industries. The economies that have historically struggled to attract FDI  show a higher tendency to implement this  concept.  Whereas, new adopters, such as some African countries,  are using SEZs to kickoff manufacturing, industrialization and export generation in order to compete with other regional countries. In transition economies, technology-centered zones are spurring. Several advanced economies are utilizing SEZs to  promote  industrial upgrading. China’s Shenzhen  SEZ, being the classic example.

SEZ ACT 2012—The inception till first amendment

The Government of Pakistan also adopted  the concept of SEZ with the commencement of the Special Economic Zones Act 2012 (herein referred to as the Act) to meet the  challenges of global  competitiveness and to create  industrial clusters in the economy. The Act envisages  SEZs  to encourage  domestic and international  investors for  promotion  and establishment of  industrial infrastructures  focusing on  export   promotion, import substitution, transfer of technology , and  employment generation. Section 4 of the Act allows the Federal Government and the Provincial Governments  to establish SEZs on their own or in collaboration  with the private parties under various modes of collaboration  including Public-Privatre Partnership  or exclusively  through  private parties. Whereas  in order to incentivize  such investment  in the SEZs, the said Act  provides certain  fiscal and allied benefits to the SEZ investors i.e. developers  and zone enterprises.

According to the information  gathered from the official sources concerned,  the significance  of SEZs  as a policy toll  for economic growth through industrialization can be gauged  from the composition of its approving forums. The apex approving  body is the Board of Approvals (BOA)  that is headed by the Prime Minister, with the Chief Ministers, Federal Ministers from relevant economic  ministries and the representatives from the public and private sectors. This high-powered  policy making  forum is effectively  responsible  for successful  establishment of SEZs across Pakistan. At  the lowest tier of the approval structure, are the  SEZ Committees  that are chartered by the BOA for each  notified zone.  These committees comprise of the representatives from the investment promotion departments at the federal  and the provincial levels, the district government, the provincial SEZ Authorities and the developer  of the r4espective zone. They are responsible  for granting approval to the eligible zone enterprises on the basis of their business proposals to be set up in the  in the particular  SEZ.

In Pakistan, the policy objectives and the type of  SEZ framework provided through the SEZ Act 2012 was originally not aligned  with the economic realities as the SEZs  from 2012-2015 were placed  outside the customs territory  of Pakistan thus limiting  their appeal for the investors that wanted to capitalize  on the budding  domestic  consumer market. Resultantly,  in order to expand the scope of SEZs and to  accelerate  industrialization, Board of Investment , being the custodian of the SEZs in Pakistan, proposed  certain  amendments  in the Act in 2015 for bringing the SEZs  within the customs territory of Pakistan. With the incorporation of the proposed  amendments  in the Act, the SWEZs were  made more investors friendly. By the end of 2016, seven SEZs got notified across Pakistan.

 Till FY 2018, only 7 SEZs existed, while six of them  had been converted from their original  status as Industrial Estates or Industrial Parks. However, with the  advent of great game changer China-Pakistan Economic Corridor (CPEC) umbrella SEZs  , the establishment of  SEZs across the country was accelerated showing  investors confidence in the industrial regime.

As of till sometime back,  22 SEZs have since been approved while 21 of them  have been  notified by the Board of Investment. These include 4 CPEC SEZs, 3 private SEZs (including two Solo Enterprise SEZs) and a Science and Technology Park that is being established by the National University of Science and Technology (NUST) in Islamabad.

During FY 2014, Bin Qasim Industrial Park Karachi, Khairpur Special Economic Zone Khairpur and Korangi Creek Industrial Park Karahi, all in Sindh province were established.

During Y2016, Hattar Special Economic Zone Haripur, Khyber Pukhtoonkhwa, M3 Industrial City Faisalabad  Punjab, Value  Addition City Faisalabad, also in Punjab were established.

During FY 2019, Oil Village SEZ Rawalpindi, Rachna Industrial Park Sheikhupura, Rahim Yar Khan  Industrial Estate Rahim Yar Khan ,Vehari Industrial Estate Vehari and Bhalwal Industrial Estate Sargodha, all in Punjb province, Rashakai Special Economic Zone , Nowshehra in Khyber Pukhtoonkhwa and Bostan Special EconomicZon, Pishin, Balochistan were established.

During FY2021, Hub Special Economic Zone Lasbela, Balochistan; Naushero  Feroze Industrial  Park, Naushero Feroze Sindh; Allama Iqbal Industrial City Faisalabad, Punjab; National Science and Technology Park Islamabad;JW-SEZ China-Pakistan SEZ Lahore, Punjab; Quaid-e-Azam Business Park,  Seikhupura, Punjab; Service Long March Tyres SEZ Jamshoro, Sindh , and; Siddiqsons Tinplate SEZ ,Lasbela , Balochistan were established.

Total area under these  SEZs is reported to be 14212 acres. Incentives provided  to the prospective investors, both local and foreign, from time to time will be mentioned some other time, please.