Successful Special Economic Zones (SEZs) offer streamlined regulatory enforcement, ease of business and establishment rules, expedited customs administration, and other special administrative and approval procedures to attract investment and/or relocation of industry. Pakistan offers a big market for investment in energy, automobile, textile, surgical equipment, infrastructure, engineering, agriculture and minerals.
The focus is also on renewable energy resources such as solar, wind, thermal, and bio-gas. There are immense potential and prospects for Chinese investors in the country. On the other hand, Pakistan needs a more developed industrial sector to lay a solid foundation for its economic revival; SEZs are to provide a number of opportunities to fast achieve a higher path of industrialization. Industrial production zones and export hubs of high-quality manufactured goods will position Pakistan in a more favourable way in the international supply chain.
Virtually, every province of Pakistan has an industrial estate or area having the infrastructure and offers various incentives; Punjab has 26 industrial estates, while Sindh, Baluchistan and KP have 30, 7 and 12 industrial estates respectively. Some of these are successful while others have failed to take off due to lack of essential skilled workforce or basic amenities.
The four pillars of CPEC investments include Gwadar Port, energy projects, transportation infrastructure and industrial cooperation. Industrial cooperation is now entering its implementation stage after Pakistan and China signed an agreement in 2018 to expand industrial cooperation in diverse fields and attract investment in special economic zones. Under the CPEC second phase, SEZs in Rashakai, Faisalabad and Dhabeji are prioritised for development out of the nine SEZs identified so far.
The SEZs are designed to use 70% of their area for industrial zones with the remaining 30% land allocation for housing and employee’s facilitation. The total area designated for Rashakai and Dhabeji SEZs is 1000 acres each and for Faisalabad 3000 acres. RSEZ is set to become and will be designed to be the Key Trade and Logistics Hub connecting Kashgar, Kabul and Gwadar on the Belt and Road. Dhabeji is an ideal destination for the establishment of new as well as existing businesses relocating from developed countries with availability of affordable and skilled labour force. Faisalabad SEZ will house textile, steel, pharmaceuticals, engineering, chemicals, food processing, plastics, and agriculture implements etc. So far, specific industries have yet to be decided for RSEZ and Dhabeji.
The on-ground situation and progress in the development of SEZs however, is far from satisfactory. There are a number of factors that have delayed the development of infrastructure. These include a lack of consistent policies and planning, unskilled and unorganized labour, public sector inexperience and lack of knowledge and transparency and absence of clarity in types of industries to be relocated. Moreover, China is particularly perturbed at delays, reselling of land and lack of basic amenities etc.
The Chinese ambassador in Islamabad has voiced his reservations about Pakistan’s seriousness towards improving the business environment while mentioning “poor trade policies, high taxes, non-existent tax incentives and lack of business-friendly environment.” This brings attention to the building sense of frustration among the Chinese investors who are investing all over the world but are hesitant to invest in Pakistan. China is not only vocal about its concerns but also has begun to express serious doubts publicly. Therefore, it is high time that Pakistan must alleviate these concerns.
Given the importance of SEZs in surplus production of value-added items that can be introduced in the international value chain, Pakistan cannot afford to delay the policy and structural decisions to make SEZs a reality. There has been inordinate delay already despite three SEZs being on priority and industrial development being included in Pakistan’s economic growth strategy.
In order to maximize benefit from opportunities likely to arise from SEZs, strategic policy directions need to be followed along with overcoming the prevailing challenges. Optimism associated with SEZs can only take a pragmatic shape if relevant authorities begin to take practical measures to make it an utmost priority and do not leave past loopholes unchecked. Also, it is important to timely calculate the challenges and design a pro-active approach to mitigate these challenges.
Only then can Pakistan achieve pro-inclusive and sustainable growth goals. Given the aforementioned realistic assessment, development of SEZs will require a dedicated approach. Therefore, Pakistan needs to ensure that all stakeholders including the Chinese and Pakistani investors are taken on board and fully facilitated to enable them to play their positive and constructive roles to make SEZs in Pakistan a success. In order to maximize benefit from opportunities likely to arise from SEZs, strategic policy directions need to be followed:
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Selection of an SEZ site should be in consultation with all stakeholders. Moreover, the policies should be developed in close coordination with Chinese and Pakistani firms.
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A co-ordinated set of rules for engagement regarding how the SEZs should work to ensure greater success in consultation with potential industrial leaders from China and Pakistan must be ensured.
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Introduction of partnerships with Chinese organizations for vocational training is a significant factor.
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Training of local enterprises on how to conduct affiliations with SEZ companies efficiently.
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The government should engage with private companies to develop and manage SEZ, whilst playing an active part in the provision of transport, electricity, water, telecommunications, waste disposal and other infrastructures, to link SEZs to global and local supply chains.
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Last but not least, the forthcoming CPEC phase may not be an easy one and therefore, Pakistan needs to ensure that all stakeholders including Chinese and Pakistani are on board and patiently play their positive and constructive roles for the success of SEZs.