INDUSTRIAL development is considered as one of the most reliable strategies to promote long run growth of an economy. Industrial development provides the firm standing on which any country can hope to reap long term economic benefits. Since the last few decades, many nations are adopting industrial development planning to improve their economic growth and special economic zone (SEZs) proved to be a fruitful strategy for promoting trade, employment and economic growth in any country. At the same time it is important that the SEZs are based on the export oriented business and trade development.
The idea of developing SEZs is now being practiced all across the globe and contributing greatly to their respective economic growth. China is the leading example in this regard. SEZs in China accounted for about 22% of national GDP, 46% of FDI, and 60% of exports. Moreover, it generated excess of 30 million jobs in China. According to World Bank’s report, "by some estimates, there are approximately 3,000 zones in 135 countries today, accounting for over 68 million direct jobs and over $500 billion of direct trade-related value added within zones." There are various models of SEZs across the globe like those of India, Bangladesh, Russia and China. China is one of the success stories as far as the functioning of SEZs is concerned.
In China various investor friendly laws were formulated. The private property right protection encouraged foreign citizens, overseas Chinese, and compatriots to set up enterprises and other establishments on their own or in joint ventures with Chinese partners. Prior to 2004, there were no private property rights defined in China. Secondly, income tax exemptions were given to foreigners working in the SEZs as well. Thirdly, a land use policy was formulated according to which, when foreigners invest in projects encouraged by the state for an operational term of more than 15 years they are exempt from land use fees for five years and pay half the usual fee for the following five years. All these measures, from tax treatments to land-use arrangements, translated into a lower cost of production or operation, and, other things being equal, a potential for higher profits
SEZs are proved as the major sources to acquire advance technology, best minds, research and development for the country. Innovation and inventions takes place in this environment which enhances the industrial competition and boost business efficiency. Locations of SEZs are very crucial for its success or failure that is why in China most of SEZs are formed in light of Chinese culture and traditions. In China, SEZs location trend remain closer to river, port, border or railways that created link between international and domestic parties.
In Pakistan, various terminologies have been used to identify the clustering of industrial production. For instance, industrial estates, industrial clusters and special economic zones are the most used concepts in this regard. An industrial estate is an area consisting of many factories and business in single locality but it is relatively small area than special economic zone with limited liberal economic policies whereas, SEZs are the specific regions identified and demarcated with the sole aim of bolstering economic activity by providing more lenient economic and tax policies as compare to general economic policies in a country.
Pakistan, like other countries, also endeavored to develop industrial estates, industrial clusters and special economic zones to promote domestic industry and extract foreign direct investment. However, it has not been that successful as the China and Asian tigers are in this policy.
Paradigm shift is taking place as the world is passing through 4th industrial revolution and automation and robotics would replace manpower. At the moment, Pakistan has to take advantage from cheap labor and resources. It needs to be realized that Pakistan requires a robust industrial base so as to ensure sustainable economic development and creation of employment opportunities since two million jobs are required annually.
CPEC has now entered a critical stage wherein industrial development would take place through development of SEZs. Development of SEZs will play an important role in the future development of CPEC that would project Pakistan as an engine of growth. In a recent chain of events, the Board of Investment (BoI) announced that the government was planning to establish 46 Special Economic Zones (SEZs) along the China-Pakistan Economic Corridor (CPEC) route.
Massive Chinese investment has created a window of opportunity in Pakistan and specialized organizations should indulge themselves for preparing comprehensive and professional work plans to attract Chinese investors in the SEZs. The provinces and regions should market their respective SEZs and offer an attractive value proposition to the investors so that maximum share could be obtained from the relocation of Chinese industries.
We all know that Pakistan offers a big market for investment in energy, automobile, textile, surgical equipment, infrastructure, engineering, agriculture, minerals and SMEs. Our focus should also be in developing renewable energy sources such as solar, wind, thermal, and biogas. There exist an immense potential and prospects for Chinese investors in the country with 180 million people. Pakistan welcomes Chinese investment in all the sectors to take advantage of liberal and forward looking investment policy. SEZs will enjoy a 10-year exemption from custom duties and taxes for all capital goods imported into Pakistan for the development, operations and maintenance. Exemption from all taxes on income accruable in relation to the development and operations of the SEZs will start from the date of signing of the development agreement. The products to be manufactured in the economic zones would not only be exported, but could also be sold in the local market. This will make the zones ideal for investors as Pakistan has a market of more than 200 million people.
Chinese companies have enormous opportunities to relocate their businesses to these priority SEZs. Every zone had special benefits for the investors in terms of skilled workforce, location, raw material and linkages with other parts inside and outside of the country. All the incentives given under the framework of CPEC should be tied clearly with the efficiency perspectives. We have really experienced that mostly industrialists in Pakistan avail incentives and then wind up their established installments once the incentives are lifted. The overall productivity of CPEC clearly rest on the mutual cooperation of federating units. In this regard, the decisions should be taken by all the relevant stakeholders. In order to exploit the benefits of CPEC, we need to have market access to the neighboring countries like Central Asian Republics (CARs). In this regard, we should have workable relationships with India, Afghanistan, and Iran. Likewise, peace in Afghanistan and the North West part of Pakistan are of extreme importance in order to reap the full potentials of CPEC. We should also work on the micro foundations of our potential exports and imports. For instance, we should know the priorities with regard to our exports. Likewise, we should know what would be our probable imports after getting market access under the umbrella of CPEC. Provinces should make presentations regarding SEZs more elaborative so they could attract more investment.
Last but not the least, for these SEZs to perform successfully, it is important to have a secure foreign investment. For that purpose not only certain economic incentives are to be offered but the provision of basic utilities such as gas, water, electricity are to be ensured too. Additionally, the workable environment should be made available where the security concerns should be at the minimum. The success of economic zones also depends on the socio-economic conditions of adjacent areas. In case of Pakistan, the local employment opportunities and capacity building should be the main focus that should be achieved with the mutual consultation and understanding between both China and Pakistan.
It’s a fact that at the moment Pakistan doesn’t have a manpower proficient enough to operate Chinese technological tools and machineries. Also there is not yet much information available about the nature of labour that will be employed in this project. It is expected that China can provide rigorous training to the local Pakistani workforce and make them skilled enough to use the advanced technology. Not only will it generate domestic employment opportunities but will directly contribute to the sustainable development of Pakistan, which of course is one of the eventual goals of the CPEC. Both China and Pakistan need to work towards bringing more transparency and clarity in this regard. The final framework should be based on equivalent and balanced opportunities for all the stakeholders.