Special economic zones (SEZs) are supposed to drive industrial cooperation under the China-Pakistan Economic Corridor (CPEC). But while the government is focusing on providing basic utilities and offering some incentives to these SEZs, this might not be sufficient to make them sprawling investment hubs.
We must understand what really matters to international investors and see if we can fix those issues. A number of global surveys indicate that a business-friendly legal and regulatory environment is one of the most important factors considered by investors in deciding to invest. As per Global Investment Competitiveness Report 2017-18, 86 per cent of respondents confirmed this notion.
It is hardly a surprise. Once the investors finalise their business case based on available incentives and tax structure in a country, what provides certainty to their scenarios is the confidence that their rights to incentives and other privileges will actually be upheld. This in turn depends on a robust judicial system, which can ensure that the investors have access to an effective civil and commercial justice and arbitration system and hedge them against breach of contracts or unpredictable and arbitrary actions and discrimination by the regulators. An efficient legal system therefore guarantees predictability in the implementation of laws and regulations and provides comfort to investors, facing inefficient bureaucracies, opaque regulations and complex procedures.
In Pakistan unfortunately, the judicial system has been quite weak. Pakistan was ranked at 117 out of 126 countries on World Justice Project’s Rule of Law Index 2019. On civil justice, Pakistan scored second lowest in South Asia and out of the seven parameters of civil justice, the country scored the poorest on effective enforcement and lack of unreasonable delay. In the recent perception and investment survey by Overseas Investors Chamber of Commerce & Industry, more than 50 per cent of the respondents mentioned that the average time consumed for resolving commercial disputes is more than five years, while some members reported facing litigations that were still pending after more than 15 years.
While it would take a long time to fix these deep-rooted issues, what remains central to success of SEZs is to quick-fix the commercial justice system at least in the SEZs.
We don’t have to look very far for an example. Dubai provides a workable model of Dubai International Financial City (DIFC) courts which has done wonders for the investment friendly city-state. The DIFC Courts, established in 2006, administer a unique English-language common law system, through a bench of six international and three Emirati resident judges, offering swift justice to settle commercial and civil disputes. For investors, the experience is as good as a state-of-the-art justice system they can find anywhere in the world. The DIFC Courts have jurisdiction over most civil and commercial matters and exclude the jurisdiction of the Dubai Courts. The model became so successful that the DIFC courts’ jurisdiction was extended to all of Dubai in 2011, subject to mutual consent of the parties.
DIFC Courts also have a tribunal for small claims, where cases are usually settled within four weeks with a 90% settlement rate, without the requirement of a lawyer, and even without personal presence, making use of a video-conferencing facility if required.
What we need is a similar commercial justice system offering modern, transparent, efficient and effective dispute resolution and arbitration to investors through internationally recognised judges. This would in turn require an appropriate legal regime, some amendment to the Constitution and most importantly right talent to put this system in place.
We must realise what has been keeping the international investors away from this market of more than 200 million people despite significant improvement in Pakistan’s security situation. And if we really want to make our SEZs a success, this is the level of innovation that we need to drive.
Published in The Express Tribune, March 12th, 2019.