Over 70 closed or sick units are enough to discourage foreign investors

June 14 - 20, 2004

The Karachi Export Processing Zone (KEPZ) was established some 24 years back in 1980 with the hope that it will become the focus of the foreign investors because of strategic location with a backup of attractive incentives and tax exemptions.

At the time when this project was conceived by the then government, 200 acre of land in the close vicinity of Port Qasim was earmarked. In the first phase of the project, 100 acres of land was developed and alloted to the interested investors mainly overseas Pakistan and to some extent some foreign investors.

According to insiders of the zone, the lose, corrupt and inefficient supervisory management instead of making endeavors to develop a national assets, made efforts for their personal gains by misusing the incentives and allowing the duty free imports to sneak into the tariff areas. Even recently there were reports that while the import of second hand vehicles was banned, some of the zone investors imported chases of the trucks and buses under the cover of dumpers and succeeded to take them to the tarrif area in Karachi and other parts of the country to make huge margins, the insiders said.

In the backdrop of this situation, the foreign investors in particular and the overseas Pakistanis in general lost their interest in the zone and gradually started deserting their units. Today, according to inside sources, not a single unit is being run by a foreign investor at KEPZ.

The gravity of the situation is reflected in the decision of the EPZA authorities to form a committee to look into the possibilities of taking over about 70 closed or sick units at the KEPZ after fulfilling the legal requirements.

It is, however, disgusting to see that the Karachi's zone failed to take off despite a much better package offered by the government to the investors.

As against the stale story of the KEPZ, free zones in Sharjah and Dubai become the center of attraction of the investors from all over the world and today they have no more space in the zone to offer to the new investors.

Why such a discernible difference between Karachi and other zones in the Middle East? this is something which should be given a serious thought by the people sitting at the helm of the affairs.

Some of the opinion leaders in the business community were of the view that since the government was on its way to privatise public entities, the KEPZ should also be handed over to the private sector through their representatives either in the Federation of Pakistan Chamber of Commerce and Industry (FPCCI) or the Associations of Industrial Areas to make the zone a purposeful and meaningful business.

The present government which has given a kick off to the national economy through professional handling of the economy has decided to set up textile city and a garment city near Port Qasim. Since these cities would be given the similar tax exemptions and incentives, it may be a better option to allow the KEPZ, house the textile or garment city over its 100 acres of land still lying undeveloped in the zone area.

With this background, the EPZA has decided to handover over 70 closed or sick units which are inoperative for last many years in the Karachi Export Processing Zone (KEPZ). The decision was made by the EPZA Committee constituted by the government on sick units of KEPZ.

It may be mentioned that about 70 units in the different sectors remained closed for several years with the land rent and other dues continued to accumulate with the passage of time causing loss to the authority.

At present around 50 units are operative in the zone area. Among the 50 operative units most of them are garment units while 12-15 units are involved in different types of trading.

The Zone Authorities, it may be mentioned, were chasing the owners of the closed units with repeated reminders to resume production at the closed units, however, most of the owners of the closed units even did not bother to reply to the communications made by the Zone Authorities. According to informed sources, most of the owners of the closed units were non-resident Pakistanis and currently either doing business or employment abroad in the United States, the Western Countries and the Middle Eastern countries.

The committee, however, unanimously decided that all legal requirements would be completed before taking over the closed units and their transfer to the new owners. In this respect, a joint team of the EPZA and Customs would be formed for correct evaluation of the value of the closed and sick units and the financial liabities owed to the EPZA by the former units. The inventory compilers would also take into account the value of the assets, machinery and stock present in the sick units.

The change of hands of the closed or sick units would take place through open bidding after making a clean slate of the affected units.

It is said that there was a great demand for land in the zone and the EPZA is considering to develop the second phase of the zone to accommodate the new investors.

The committee was of the opinion that the units in the zone enjoyed unprecedented incentives in the form of duty free imports and exemption from sales tax. The provisions of imports policy only applied on supplies made to the tariff area outside the zone.

The committee said that foreign exchange regularations did not apply on foreign currency account maintained by the investors in the zone. When the foreign currency accounts were freezed after the nuclear test, the investors in zone continued to enjoy their foreign currency accounts with the banks.

Despite all these incentives, the zone could not contribute significantly in the growth of the national economy, neither it generated enough employment opportunities to combat the menace of unemployment in the country.

The existence of hardly 50 units at a zone came on the ground some 24 years ago speaks in volumes about the state of affairs at KEPZ. Although the present management at the KEPZ is endeavoring to make the zone result-oriented and according to reports the exports for the current financial year was estimated at $200 million, yet it does not translate the real potential, time and efforts consumed over the development of the Karachi Export Processing zone.

The present government has an economic agenda to take up our exports from the current level of $12 billion to $20 billion during next couple of years, the agenda also speaks about poverty reduction through job creation for the unemployed, despite getting relaxation in debt servicing the nation has to pay off a foreign debt of over $34 billion. All these figures are big challenges before the entire nation. Pakistan can achieve these targets if the entire nation was given a direction and all ill economic ventures are cured to make them productive in the real sense.