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.