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Special Economic Zones in Pakistan
Special economic zones (SEZs) are zones created with the purpose to escalate trade, investment, job creation through effective administration and financial policies incorporating investment, taxation, trade, quotas, customs, and labor regulations.
History of SEZs:
- According to World Bank’s 2019 annual report, “by some estimates, there are approximately 5400 zones in 147 countries, more than 500 SEZs are in pipeline, which are creating jobs and direct trade-related value added in zones.”
- History has witnessed the role of SEZs to develop economies. The global experience suggests that Special Economic Zones SEZs are an important source for diversification of the economy, reduction in regional disparities, clustering of economic activities for complementarity generation with local industries, skill development of local labor force, transfer of technology, and dissemination of know-how, promotion of ancillary industrial activities, development of local entrepreneurship, creation of competition, the attraction of local and foreign direct investment especially towards under-privileged regions, generation of employment, promotion of exports, and ease of administration and management.
Creation of SEZs in Pakistan:
- Despite stimulating growth performance, Pakistan’s economy lags behind its long-term potential growth path mainly due to inherent structural weaknesses but it possesses a favorable demographic profile, which has the ability to drive the economy into the high growth path.
- In this regard, Pakistan announced to make of nine Special Economic zones (SEZs) in collaboration with China under CPEC to supplement industrial development and accelerate economic growth through export promotion and import substitution.
- SEZs under CPEC will be a lifetime opportunity for Pakistani companies to work together with Chinese companies for the development of export-oriented manufacturing industries.
- Pakistan has now joined the line of special economic zones with multiple countries including China and India in the region.
- Pakistan offers a big market for investment in energy, automobile, textile, surgical equipment, infrastructure, engineering, agriculture, minerals, and SMEs.
- Our focus is also on renewable energy sources such as solar, wind, thermal, and biogas.
It aims to achieve various policy objectives:
- Boost Foreign Direct Investment (FDI).
- Production and Trade at a lower cost.
- Globally Competitive.
- Expansion of Exports.
- Reduce Current Account Deficit.
- Support Industrialization.
- Diversify Manufacturing Products.
Impact of SEZs :
- In this new phase of industrialization under CPEC, Pakistan will have a number of opportunities to capitalize on and, of course, will face challenges that it will have to effectively manage for the success of SEZs.
- CPEC is not just a corridor but it’s a portfolio of projects.
- Turnover of Rs 1 trillion is expected with the creation of 2,000,000 jobs, through these SEZs by its completion. (DAWN, Jun 2016)
- Under CPEC, Gwadar SEZ is the first model based on the area of 3000 acres at the special discretion of China.
Incentives in Special Economic Zones
The SEZ incentive package that is currently in vogue is as follows:
(i) Exemption from income tax for ten years for Zone Developers, Co-developers, and Zone Enterprises, under clause (126E) of Part I of the 2nd Schedule to the Income Tax Ordinance, 2001 which is reproduced as below:
“Income derived by a zone enterprise as defined in the Special Economic Zones Act, 2012 (XX of 2012) for a period of ten years starting from the date the developer certifies that the zone enterprise has commenced commercial operation and for a period of ten years to a developer of zone starting from the date of signing of the development agreement in the special economic zone as announced by the Federal Government:
Provided that this clause shall also apply to a co-developer as defined in Special Economic Zone Rules, 2013 subject to the condition that a certificate has been furnished—
(a) by the developer that he has not claimed exemption under this clause and has relinquished his claim in favor of the co-developer; and
(b) by the Special Economic Zone Authority validating that the developer has not claimed exemption under this clause and has relinquished claim in favor of the co-developer.”
(ii) One-time exemption from all custom duties and taxes on import of capital goods to Zone Developers, Co-developers, and Zone Enterprises, vide PCT 9917(2) under Chapter 99, sub-chapter V of the First Schedule to the Customs Act 1969 which is reproduced as below:
“Capital goods, as defined in the preamble of Part-I of the Fifth Schedule to the Customs Act, and firefighting equipment, except the items listed under Chapter 87 of the Pakistan Customs Tariff, imported for setting up of a Special Economic Zone (SEZ) by zone developers and for installation in that zone by Zone Enterprises, on one-time basis as prescribed in the SEZ Act, 2012 and rules thereunder subject to such conditions, limitations and restrictions as the Federal Board of Revenue may impose from time to time. Co-developer as defined in Special Economic Zone Rules, 2013, shall also be entitled to avail the same incentives and exemptions for the same period as available to the Developer under the SEZ Act 2012, subject to the condition that the Developer of the SEZ relinquishes its rights to the incentives and exemptions in favor of the Co-developer; provided further that the respective Special Economic Zone Authority duly endorses such reassignment, and ensures that such reassignment shall not be misused.”
- Rashakai Economic Zone, M-1, Nowshera.
- China Special Economic Zone Dhabeji.
- Bostan Industrial Zone.
- Allama Iqbal Industrial City (M3), Faisalabad.
- ICT Model Industrial Zone, Islamabad.
- Development of an Industrial Park on Pakistan Steel Mills Land at Port Qasim near Karachi.
- Special Economic Zone at Mirpur, AJK.
- Mohmand Marble City.
- Moqpondass SEZ Gilgit-Baltistan.
- The main objective of the project for the Government of KP and by extension KPEZDMC is to promote industrialization through optimally priced, world-class industrial infrastructure in the province, which enables industrial investment, job creation, and economic uplift.
The project also provides an opportunity for the Government of KP to generate some non-tax revenue through KPEZDMC. This reduces the financial burden on the exchequer, as KPEZDMC can cover some of its costs, liabilities, etc., and plough back the earnings into further development of industrial infrastructure.
- The execution of the project is conceived in the PPP mode, whereby KPEZDMC creates an investment ‘nest’ or ‘protected envelope’ wherein foreign investment from CRBC and Zone Enterprises can function with reasonable security and facility.
- Pakistani professionals and engineers will be able to work in the SPV Company, resulting in capacity building in the development, management, and operations of industrial parks and infrastructure.
The RSEZ is situated centrally in the China-Pakistan Economic Corridor at the junction of the Karakoram Corridor and ML-1 development corridor, at 34.070714 East Longitude and 72.184269 North Latitude. It is nested in the center of major urban centers of the region, which will act as support to RSEZ and the platform for economic growth. Its location provides ideal and convenient connectivity at Karnal Sher Khan Interchange on the M-l Motorway. The location is within about a one-hour drive from the new Islamabad International Airport and is within a similar distance from Peshawar & the M-l / N55 Indus Highway Interchange. Hakla Interchange of M-l / CPEC Western Route is about 30 minutes drive, while Karnal Sher Khan Interchange of M-l / CPEC Second Northern Route is about 10 minutes drive. In addition to being a key part of the Belt & Road Initiative, RSEZ will be ideally located to utilize the resource base, and serve the markets of, central/north-eastern K-P, north / western Punjab, AJ&K, Gilgit-Baltistan, and eastern Afghanistan.
RSEZ is set to become and will be designed, to be the Key Trade & Logistics Hub connecting Kashgar, Kabul and Gwadar on the Belt and Road, and be a high-end host of international commercial, technological, and manufacturing hubs. It will house a modern training base, modern technology transfer center, ‘utilization’ type modern manufacturing center, finance center, and hi-tech innovation center.
RSEZ is proposed to be a classic example of cooperation between two countries in industrial modernization & urbanization.
PROJECT SCOPE AND DESCRIPTION:
A detailed Economic and Financial feasibility study was conducted by the venturing parties, which is currently under review by the K-P Department of Industries, Commerce & Technical Education, and Department of Planning and Development and in-depth discussions are being held.
Under the rolling development strategy of the project in the draft Concession Agreement, the 1000 acres of land of RSEZ will be developed in three phases over the next 5. The total area designated for Industrial use is 702 acres – as per Federal SEZA Regulations, of which 159 acres will be developed in Phase I, 279 acres in phase II, and subsequently 264 acres in Phase III. For commercial use, an area of 76 acres has been allocated.
Industrial clustering for the project has been established, following the modern concept for ensuring the long-term viability of industrial and commercial economic zones.
RSEZ will house the following industrial clusters.
(i) Garment and Textile Products
(ii) Home Building Materials,
(iii) General Merchandize
(iv) Electronics and Electrical Appliances
(v) Automobile and Mechanical Equipment.
RSEZ will also house K-P IT Board’s 100 Acre Technology City (incorporating an Electronic Manufacturing Centre).
China Special Economic Zone Dhabeji
The Government of Sindh has earmarked 1530 acres of land to be developed as the Dhabeji Special Economic Zone (DSEZ) in Thatta, a Priority Project under the China-Pakistan Economic Corridor (CPEC), which will facilitate the potential investors of China and other countries to either start new enterprises or transfer their facilities to Pakistan.
- The location has of Dhabeji the following advantages:
- Easy access to Port Qasim enables raw material import and finished goods export without incurring major inland transportation costs and saving time.
- Easy access to Karachi Airport (35 Km) via National Highway enabling safe travel of foreign workers and management personnel.
- Direct access to the National Highway enables the transportation of goods to upcountry and Central Asian nations utilizing the National Trade Corridor.
Dhabeji Special Economic Zone(DSEZ) has the potential to transform into an Expatriate Enclave with modern infrastructure and a tax incentive package which will include exemption of Custom Duties and Taxes on the import of plant and machinery for the developer and the enterprises.
- Joint Ventures (JVs) with Pakistani Companies will be encouraged
- Export Oriented Industries will be prioritized
- Project to be developed under Public Private Partnership Mode
Investment Opportunity Sectors:
- Automotive and Auto parts
- Chemical & Pharmaceuticals
- Consumer Electronics Engineering
- Textile & Garments
- Building Material
Infrastructure and Facilities
- Technical & Vocational Training Centre
- Captive Power Plant
- Warehouse/Logistics Park
- Waste Water Treatment Plant
- 5 Star Hotel
- Trauma Centre/Hospital
- Business Center, Auditorium/Expo Center
- Fire Station/ Emergency Response Centre
- Residential Zone
- Common Machinery Pool
- Airport 80KM
- Seaport 85KM
- Railway Station 5KM
- Highway 4.5KM (N-5)
Bostan Industrial Zone
Type of Industry
- Fruit Processing
- Agriculture machinery
- Motor Bikes Assembly
- Cooking Oil
- Ceramic industries
- Ice and Cold storage
- Electric Appliance
- Halal Food Industry
Availability of allied utilities i.e road, street, lights, etc.
- 200 Acres have been developed
- Airport 23KM (Quetta)
- Seaport 713KM (Karachi) & 976KM (Gwadar)
- Dry Port (Quetta) 32KM
- Highway (N-50) 0KM
- Area (Acres):
- Type of Industry:
- Food Processing
- Agriculture Implements Etc
- Adjacent to the existing SEZ of M-3 Industrial City, Faisalabad.
- Sahianwala Interchange Motorway M-3
ICT Model Industrial Zone, Islamabad
- Area (Acres)
- Type of Industry
- Food Processing
- Pharmaceutical & Chemicals
- Printing and Packaging
- Light Engg. Etc.
- Identification of land under process
Development Of Industrial Park On Pakistan Steel Mills Land At Port Qasim Near Karachi
Port Qasim Near Karachi
- Area (Acres)
- Type of Industry
- Auto & allied
- Printing and Packaging
- Garments etc.
- The land has been earmarked. PSM will transfer the land to NIP
Azad Jammu Kashmir (AJK)
- 22 Km from Main GT Road Dina-Jhelum- 130 Km from airport.
- 02 Km from In-active Railway Track.
- 5 Km from proposed Dry Port at Mirpur.
- 140 Km from Sialkot.
Mohmand Marble City
- Project Progress Update
Feasibility studies of SEZs are shared with Chinese.
Moqpondass SEZ Gilgit-Baltistan
- Area (Acres)
- Type of Industry
- Marble / Granite
- Iron Ore Processing
- Fruit Processing
- Steel Industry
- Mineral Processing Unit
- Leather Industry
- Land allotted
- Airport 35KM (Gilgit) & 160KM (Skardu)
- Sust Dryport 200KM
- CPEC Route 4KM
- On Gilgit-Skardu Road
- Around the world, SEZs have helped to improve the socio-economic outcomes in the relevant localities and thus brought about broad-based economic development there.
- A special economic zone (SEZ) is a cornerstone strategy to promote trade, employment, export, government revenue, local industry, and economic growth in a country by encouraging forward and backward linkages.
- Thus, it is pertinent for the federal government of Pakistan (Board of Investment), to fix deficiencies, in this context it needs to control the Internal Rent-Seeking of Industrialist, solve coordination problems between provinces, enhance internal and external security, set prioritize imports and exports with vision 2025, revise the laws pertaining to special economic zones (SEZs) under the China-Pakistan Economic Corridor (CPEC). Furthermore, improved physical and soft infrastructure is crucial in designing policies for SEZs.
- By overcoming these shortcomings and meeting the challenges, Pakistan can surely turn CPEC into a game-changer in the region.