Pakistan to establish 29 special economic zones under CPEC to kick-start economy

Federal government has planned to establish about 29 Special Economic Zones (SEZs) in all of the four provinces under China-Pakistan Economic Corridor in order to promote business activities and attract investment in different sectors of the country.

The SEZs will be located in different parts of all provinces which will be identified by the provincial governments. The purpose of these SEZs is to enhance country’s productive capacity, expand exports base and provide an impetus for economic and social development through their linkages with the rest of the domestic economy. These SEZs may prove to be a turning point for the industrial sector in the country, as economic zones have played a key role in industrial development in many Asian economies. Until now Pakistan has not explored the option of SEZs for attracting FDI and for promotion of industrialization and economic growth.

The Executive Director General Board of Investment Dr Rania Ahsan, in a press briefing in Islamabad said that out of total investment of forty-six billion dollars under CPEC 76 percent would be invested in the energy projects.

The idea of SEZs was first implemented in New York in 1937 following the passage of the Free Trade Zone Act by the United States Congress in 1934. A review of country experiences shows that not every economic zone had been successful in delivering its objectives but most successful zones are found in East Asia and Latin America. The renewed emphasis on SEZ would allow Pakistan from the successful experience of China.

In Pakistan, the Special Economic Zone Act 2012 provides the governing structure, allowing both the federal and provincial governments to set up economic zones under various administrative frameworks. The Act states:

Special Economic Zone (SEZ) is a blanket term for various types of specialized zones with specific types of enterprises operating in a well-defined geographic area where certain economic activities are promoted by a set of policy measures that are not generally applicable to the rest of the country. Successful SEZs offer immediate access to high-quality infrastructure, uninterruptible power supply, clearly titled land, public facilities, and support services.

The fiscal benefits under the SEZ law include a one-time exemption from custom duties and taxes for all capital goods imported into Pakistan for the development, operations and maintenance of a SEZ (both for the developer as well as for the zone enterprise) and exemption from all taxes on income for a period of ten years

SEZ can either be fully led by the government, or work in collaboration with private sector. Exclusive operation through private sector is also a possibility. In either case it is important that regulatory and administrative bodies should have necessary power, autonomy and available funding. Weak administrative bodies result in detrimental performance by SEZs.

The implementation of SEZs can prove useful provided that all the provinces work with coordination. The provinces are formulating their own investment and industrial policies, so the need to collaborate to design coherent policies is vital . The effective partnership not only between the federal and provincial governments is essential but coordination with the private zone developers is also very crucial to achieve the expected benefits of SEZs.