Post-bill era: China and Japan likely to set up economic zones

SEZ bill to fast-track investment, ensure consistency of policies.

ISLAMABAD:

As parliament has approved the Special Economic Zones (SEZ) bill after debating it for three years, the chances for China and Japan to set up zones in Pakistan have suddenly increased, which will give much-needed impetus to foreign investment in the country, said Board of Investment (BOI) Chairman Saleem Mandviwalla.

Addressing a press conference here on Saturday, Mandviwalla said the SEZ bill has largely addressed concerns of China and Japan, which were reluctant to establish economic zones in absence of a legal framework.

Other countries were also interested in setting up such zones and there were chances that after the passage of the bill Turkey and South Korea will also come forward. The National Assembly passed the SEZ Bill 2011 on Friday, aimed at attracting domestic as well as foreign investment.

Investment in the country has dropped to 12.5% of gross domestic product (GDP), the lowest ever level.

Mandviwalla said the SEZ bill will be an important tool to fast-track investment and swiftly offer incentives to foreign investors. Until now, the process of giving incentives took more than usual time due to involvement of various ministries and departments.

He said the bill will ensure consistency and transparency in economic policies beyond political divide and restore investor confidence. The bill provides guarantee that incentives, once granted, will not be withdrawn due to conflict of interests.

He said the bill will also provide, hitherto missing, protection for international investors, who were wary of investing in Pakistan due to political uncertainty.

India and China have already allowed similar special economic zones to boost investment in their countries. There are around 3,000 zones with over $600 billion investment, which have created 50 million jobs in 120 countries.

Mandviwalla was of the view that existing industrial projects can also be declared SEZs by the Board of Approval, headed by the prime minister. However, he did not respond to a question whether there were examples in the world where individual projects were converted to SEZs having special incentives.

He said the SEZ concept was similar to the Reconstruction Opportunity Zones, which the US was planning to establish in war-torn areas of Pakistan, though incentives were different. With new tools in hand to fast-track foreign investment, Mandviwalla expressed the hope that Russians would set up a tractor manufacturing plant while Chinese were interested in establishing a car manufacturing unit.

However, he made it clear that there will be no relaxation in duties on import of raw material for the industries to be set up in SEZs. Only customs duties will be waived on import of capital goods while income tax exemption will be provided for 10 years.

The law allows the establishment of SEZs anywhere in the country over a minimum area of 50 acres. Benefits for the developers include one-time exemption from customs duties and taxes on all capital goods imported into the country for development, operation and maintenance of the zones, exemption from all taxes on income accruable in relation to the development and operation of the zone for 10 years, starting from the date of signing of a development agreement.

The BOI chairman stressed that no land trading would be allowed in SEZs. “I do not want these zones to become housing colonies.”

He said the biggest deterrent to investment in the country was the security situation, pointing to the fact that at times investors do not want to come to Pakistan and insist on holding meetings overseas.

Published in The Express Tribune, July 15^th, 2012.