APPROVAL OF SPECIAL ECONOMIC ZONES (SEZS) BILL, 2012

SYED FAZL-E-HAIDER
(feedback@pgeconomist.com)

Sep 17 - 23, 20
12

President Asif Ali Zardari has approved a legal and regulatory framework for creation, development and efficient operation of Special Economic Zones (SEZs) in the country to facilitate local and foreign investors. Last week, Zardari signed the Special Economic Zones (SEZs) Bill, 2012, which is believed to be a consensus law to ensure continuity of economic and investment policy and it would no longer be possible to change the policy without changing the law. Under the new law all capital goods, machinery and equipment will get one time exemption from the customs duties and the entrepreneurs will be exempted from income tax for ten years. The analysts believe that the new law is expected to expedite several SEZs projects, which have already been proposed by the government in different areas of the country, while critics say that the law has particularly been approved by Zardari to expedite the development of SEZ in the coastal city of Zulfiqarabad in Thatha district of Sindh, proposed by the Chinese last year. China is the major investor and stakeholder in Zulfiqarabad project, which is strongly being opposed by Sindhi nationalists, who fear that it will turn the local Sindhis into minority changing the demography of the province.

The new law may encourage Japan to revive Japan Special Economic Zone (JSEZ) project in the South Asian country. In 2009, Japan proposed to set up the JSEZ at an initial cost of $5 billion for Japanese investors in Pakistan near the southern port city of Karachi in Sindh province. Several Japanese manufacturing units, including Suzuki, Sony, Yamaha and Marubeni, showed interest in establishing their units in the JSEZ. Islamabad offered 100% equity, free flow of money with remittance of royalty and technical fee to attract Japanese investors.

JSEZ is however in doldrums, as Japanese authorities have practically been showing indifferent and non-serious attitude to invest in the project. Even after lapse of three years, the Japan has not taken any positive measure in this regard. Local analysts see security concerns in the country as major hurdle in launching the JSEZ project and argue that deterioration of law and order and frequent suicide bombings and bomb blasts in cities and towns have discouraged the foreign investors to invest in the country.

Presently, while the foreign investors are losing attraction in the terror-hit Pakistan, the China has committed not only to complete its all ongoing projects but also to launch new projects in the strife-torn country. Beijing is all set to take over and run the country's strategically located Gwadar port in southwestern Balochistan province.

Pakistan has already declared Gwadar as SEZ and all imports coming through this zone would be exempted from customs duty and sales tax along with sufficient concessions on income tax. Under the new law, the investors are supposed to avail special incentives to flourish their businesses in the Gwadar SEZ.

The Chinese, who have proposed several SEZs across the country, are supposed to be the main beneficiary of the incentives and tax exemptions given under the new law. The under-construction Chinese overseas SEZ near Lahore city in Punjab province is the first Chinese industrial zone outside China in which leading Chinese groups would make investment and establish various projects. Ground breaking ceremony of the Chinese overseas SEZ was performed in December 2006 in the presence of Chinese President Hu Jintao and former Prime Minister of Pakistan Shaukat Aziz.

Haier, the China's largest home appliance-maker, entered Pakistan with an initial investment of about $35 million to create a joint venture, called Haier Pakistan, with Ruba General Trading Company. The Haier-Ruba zone, the first overseas industrial zone established by China, is presently in doldrums over the issue of land acquisition and financing. The project has been considerably delayed on the issue of sharing cost of land, as Haier-Ruba has refused to buy 4218 acres of land from its own pocket. Haier-Ruba has been insisting that land should be provided free of cost, or at subsidized rates.

The SEZ in the proposed coastal city of Zulfiqarabad will house leading investors and industrialists from China to undertake mega developmental projects. A significant feature of the project is that the Chinese would invest and reinvest for 15 years in the proposed city before taking out profits. The Sindhi nationalist parties including Jeay Sindh Qaumi Mahaz (JSQM) and the Sindh National Movement Party have opposed the development of Zulfiqarabad city, referring to it as a "new Israel". Even many provincial lawmakers of the ruling Pakistan People's Party (PPP) have expressed their reservations on the new city. They have called for a constitutional guarantee to the local people for not giving voting rights to outsiders.

President Zardari has directed the Sindh government to identify a million acres of land near the coast in Thatta district for the development of Zulfiqarabad city. In March, a Chinese business delegation led by Li Yan, Chairman of Asia Investment Houtang, met with President Zardari in Islamabad and expressed interest in the development SEZ in Zulfiqarabad. Zardari assured Li Yan of providing all possible assistance and facilitation to the Chinese companies and investors in the proposed city.

In July, JSQM took out a rally and staged a sit-in on National Highway in southern port city of Karachi against the development of SEZ in the proposed Zulfiqarabad city. JSQM activists wanted to stage the sit-in outside the Consulate General of China in Clifton area of Karachi but the police did not allow them. The rally's participants chanted slogans against the President Zardari and the Chinese government and appealed the people of Sindh to stop buying all types of products made in or made by China.

The massive resentment on Zulfikarabad project is somewhat like Gwadar port city in Balochista where Baloch nationalists have been expressing their reservations about deep-sea port project being developed by the Chinese. Baloch nationalist parties believe that the local people would see the control of outsiders over the natural resources of their province, as the grandiose schemes and projects in Gwadar port will change the demography of the province owing to a large-scale influx of outsiders.