Special Economic Zones (SEZs) and Investment Opportunities in CPEC April 26, 2018

Special Economic Zones (SEZs) and Investment Opportunities in CPEC April 26, 2018

Compiled by: Nisar Ahmed
Reviewed and Edited by: S. Sadia Kazmi
STRATEGIC VISION INSTITUTE (SVI), ISLAMABAD

Strategic Vision Institute (SVI) Organized a one day Conference on “SEZs and Investment Opportunities in CPEC” on 26 April, 2018 at Islamabad Serena Hotel. The event was attended by the bureaucrats, scholars, academicians, journalists, students and members of civil society.

Session I: Inaugural

Mr. Ross Masood Husain, Chairperson SVI formally inaugurated the program and welcomed the worthy speakers and participants of the event. Commending efforts of the SVI for conducting such topical and timely events, Mr. Husain said that the CPEC projects are fast moving from first to the second phase which included establishment of the Special Economic Zones (SEZs). In this regard he referred to Shenzhen Special Economic Zone in China as an example of Chinese expertise in the establishment of SEZs and expressed optimism that the same success story of SEZs would be replicated in Pakistan with Chinese assistance. He said that Pakistan direly needed an investment in its energy and transport infrastructure but no one was willing to do just that. Unlike many others it was China that come forward and invested in Pakistan at a time when even the existing industries and investors were shifting to other countries. However, he drew attention of the Chinese Political Councilor to the fact that as the CPEC projects gain pace there are some apprehensions that it is not offering a level playing field to Pakistani entrepreneurs, an oft repeated concern of the Pakistani business community that he said needs to be addressed by providing the same kind of concessions and support that the government of Pakistan is providing to the Chinese investors. Mr. Ross Husain concluded his thoughtful and candid remarks by wishing god-speed to the success of the CPEC projects and urged both China and Pakistan to address issues with ‘Pak—China bhai bhai’ spirit- an expression often used to describe the brotherly ties between Pakistan and China.

In his welcome and introductory remarks Dr. Zafar Iqbal Cheema, President Executive Director SVI expressed gratitude to the Chief Guest Dr. Salman Shah (former caretaker Finance Minister and former Advisor to the Prime Minister of Pakistan), Mr. Jiang Han (Political Counselor of China in Pakistan) and all the worthy speakers and audience for their participation. Expressing his views on the topic Dr. Cheema said that while CPEC provides a historical opportunity to Pakistan and is rightly being termed as the game changer, but ultimately it depends on how actively Pakistan plays in the game to gain maximum benefits and secure its national interests in the process. He said that owing to its sheer size in terms of the countries and money involved, the Chinese Belt and Road Initiative (BRI) outplays even the Marshall plan aimed at the rehabilitation of Western Europe after the Second World War. He concluded his brief remarks with the hope that the Pakistani leadership would rise up to the occasion and exploit maximum benefits from this unique opportunity.

Addressing the audience as a Key Note Speaker, Mr. Jiang Han (Political Counselor of China in Pakistan) said CPEC has four pillars: Energy, infrastructure, Gwadar port and SEZs. He underscored that SEZs would ensure sustainable development of Pakistani society and will improve the trade deficit. In addition, the local people will learn the advanced experiences of managing these projects. He stressed upon the importance of correct understanding of the SEZs; stating that it is not a cash cow but a form of development, investment and learning advanced experiences. One needs to work hard from the very beginning to gain the benefits. SEZs need a comprehensive design and planning. When it comes to the establishment of the SEZ, the characteristics of a particular region and the type of SEZs being established in that region should be complimenting each other. Second, SEZs need preferential policy and supporting facilities to attract investment. In this regard, prolong tariff exemptions, better roads and supply of electricity, water is required to ensure the functioning of the zone. SEZs need patience and need better services along with the reevaluation of the utility of existing policies on the basis of experiment. Flexibility of policies should be ensured to attract more investors. Pakistan and China are time tested friends and believe in the sustained mutual collaboration to make CPEC a success story for the development of the two countries.

Chief Guest of the event, Dr. Salman Shah (former Caretaker Finance Minister of Pakistan and Former Advisor to the Prime Minister of Pakistan) began his speech with a note of thanks for the opportunity and applauded SVI’s efforts to conduct timely seminar on an extremely important topic in the backdrop of CPEC. He noted that Pakistan is ranked at 147 in terms of ease of doing business and SEZs are very important in ameliorating the ranking by fully exploiting the opportunity being provided by CPEC projects, in this case the SEZs to improve the business environment in the country. SEZs can be viewed as an effort to attract the investors by mitigating Pakistan’s problems on a fast track basis like regulatory burden, tax burden, legal complexities, inefficiency burden, the logistics burden, and the power shortage. This method can then be implemented in the entire country so the entire country becomes a Special Economic Zone. Answering his own question as to why it is important for Pakistan to attract foreign investment he said given Pakistan’s promising demographic factors that 60 percent of the population is under 25 years of age and working age population is 100 to 110 million people, it is very important for Pakistan to be the next factory of the world to accommodate the growing youth bulge. He underscored that Pakistan needs to grow at 10 to 8 percent a year and in order to translate that growth into jobs it needs to develop agriculture and manufacturing sectors. In this regard, Chinese efforts in bringing reforms in the agricultural and industrial sectors can be taken as a lesson to learn from. He said Pakistan is not only the youngest country in terms of age but also the fastest urbanizing country in the world. Currently at 40 percent Pakistan will reach 70 to 80 percent urbanization over the next 30 years. The consequent migration of people from rural to urban areas necessitate well thought out urbanization. Because the global value and supply chains are primarily going to be in the cities, most of these SEZs have to be near the big cities and along the trade routes, he opined. He argued that after the end of the Cold War, with the collapse of Soviet Union and the fall of the Berlin wall, the world is no longer driven by any ‘isms’ rather it is driven by the law of supply and demand. So only the most efficient supplier who provides maximum facilities, benefits, best quality, delivery system, and best information to the world would be successful. Thus, CPEC is about flawless trade, free movements of goods across the borders, most efficient logistics, transportation systems, free trade agreements, bilateral investment treaties, technology transfer, skills development, brain power, universities, education, and health and in fact it’s about all the inputs which go into supply chain. He emphasized if a country cannot specialize in at least a few global supply chains, it cannot be prosperous. Pakistan needs to ensure that SEZs become home to global supply chains. He concluded his remarks by emphasizing the need for increased productivity and making CPEC and the SEZs as the most efficient and cost benefit elements for the economic development of Pakistan which is being seen as a bridge between Eurasia and the rest of the world. At the end of this inaugural session, Mr. Ross Masood Husain presented souvenir to the worthy Chief Guest and the Key Note Speaker. Session II: SEZs in CPEC: Background Trends and Challenges. The session was chaired by Dr. Salman Shah. Speakers for this session included Dr. Ejaz Akram (Advisor to the President NDU, Islamabad), Dr. Zafar Mehmood (Head of Research and Acting HoD Development Studies, NUST), Mr. Saud Bangash (Resident Director, Pakistan Business Council), and Dr. Nadia Farooq (Freelance Economic Expert/Consultant at Asian Development Bank-ADB).

First speaker of the session Dr. Ejaz Akram commenced his speech with thanks and gratitude to Dr. Cheema and the guests gathered at the event for having been invited to talk on an important topic. Delivering his speech on “SEZs: Scope, Developments and the Current Status”, Dr. Ejaz Akram said that SEZs formed the heart of the CPEC and Pakistan’s relations with China are much deeper compared to its ties with the US. Comparing the development experiences of Pakistan and China, he asked the audience to note that in order to get a place in the world economy; China pursued a policy of avoiding war. The significance of CPEC lies in the fact that Pakistan did not have the capacity to build infrastructure necessary for sustaining the development process. CPEC, in his view, was not something new; it is the resurrection of old relationships in trade. He dismissed the apprehensions that that CPEC represented another East India Company, claiming that the people who held this view were in a very small minority in the country. SEZs are the areas to facilitate business and trade, where laws are framed to attract more investment. SEZs are facilitation centers for trade and business and serve the purpose of connecting cities with hinterland. They should be fully integrated units that take into consideration not only the economy but ecology as well. Integrated SEZs can help decrease social pressure on big cities. Talking about the challenges, Dr. Ejaz Akram said that with the expansion of work under CPEC, the number of Chinese working on the projects as engineers and technicians would increase reaching one million in near future. This may lead to some cultural friction as Pakistan and China have two entirely different social systems. There is, therefore, a need for promoting people-to-people contacts through encouraging interaction between the students, journalists, businessmen and artists of the two countries. His suggestion to say good-bye to dollar based currency system evoked a heated but interesting debate in which majority of the participants favored Pakistan’s continued link with dollar based currency regime.

Second speaker of the session Dr. Zafar Mehmood made a presentation on “Potential Threats and Challenges to the SEZs”. He said that with the initiation of CPEC and SEZs, the signs of improved economic growth are now visible in nearly all major sectors of economy including manufacturing and services. Notwithstanding the positive trends, Pakistan is yet to fully utilize its potential long term economic growth rate. He attributed this inability to fully utilize the potential to the inherent structural weaknesses in Pakistan’s economy. He stressed that Pakistan needs to reposition itself in the world market in the face of rapid transformation in the global economy by taking advantage of its natural endowments like the important geo-economic location. In this regard, he said Pakistan’s favorable demographic profile- 60 percent of the population comprising of youth, and its largest Diaspora has the potential to drive the economy to high growth path provided conducive and business friendly environment is ensured. CPEC presents Pakistan with the much required opportunity to take strategic economic decisions that help exploit the untapped potential of fast track industrialization. He was of the view that Pakistan aims at establishing resilient and potentially productive industries to initiate a new era of industrialization and trade in collaboration with Chinese companies. Identifying challenges in harnessing the potential that has become available with the CPEC, Dr. Zafar Mehmood enumerated low investment, scattered industries, weak institutions, low quality human resources, shallow tolling skills, lack of modern technology, high business cost, lack of intellectual property rights protection. Moreover, he also stressed upon the need to be careful while selecting the sites for SEZs as it may generate competing claims of the local stake holders. As a way forward he recommended that to make SEZs a reality their development should be made part of the overall growth strategy of the country. Specifically he said the rule of thumb for site selection for SEZs should only be the competitiveness of the area. Harmony between the Federal and provincial administrations should be ensured and all the political parties should be on the same page for the successful implementation of the SEZs. He argued that the success of SEZs was dependent on providing the requisite human resources and finance, connectivity with global markets, harmonization of policies, provision of utilities and good governance. He added that it was imperative to take all the stake holders on board, provide full media coverage, organize road shows and agricultural lands of local communities should not be encroached upon. He also suggested creating synergy/complementarities between Pakistani and the Chinese SEZs.

Mr. Saud Bangesh as the third speaker made a policy oriented presentation on the topic titled ¡§Policy Steps to Foster Local Manufacturing in Collaboration with China¡¨. At the outset of the presentation, Mr. Saud Bangesh gave an overview of Pakistan¡¦s current position in terms of achievements in energy, industry and export sectors. He mentioned the increase in energy power capacity of about 11000 MWs and the potential generation of power from indigenous sources like Thar coal, commissioning of two LNG terminals to overcome natural gas shortages, tax reforms, Auto policy leading to new entrants, improvement in law and order bolstering investor confidence, and most importantly CPEC and SEZs as major achievements. Explaining the trajectory of Pakistan¡¦s economic growth which was at par with that of China, Indonesia and South Korea until 1980 which subsequently moved towards a decline, he said that the contribution of industries in the GDP of those countries is 38 to 40 percent whereas in Pakistan¡¦s case it was 19.4 percent as of 2016. Thus, he stressed that for those countries, from the outset, the industries lead the way to economic development as they are taken as important policy tools. Pakistan should also pursue rigorous industrialization. He was of the view that Pakistan needs to take a very facilitative approach to revive the manufacturing sector. He identified the following critical issues which are impeding growth of manufacturing in Pakistan.
A. Liberal Imports of Finished Goods has harmed local industry
(1) Poorly negotiated FTAs
(2) Cascading tariffs
(3) Valuation of imports
(4) Value added tax structure
(5) Full and final tax
B. Skewed Fiscal Regime has crowded out private capital
(1) Heavy taxation
(2) Fiscal policy not supportive of scale
(3) Unfair competition from the informal sector
(4) Unfriendly business environment
C. High Cost of Factor Inputs: Energy, Labor
To strengthen the manufacturing sector, increase exports and for the successful utilization of SEZs, he identified some key areas where urgent steps are needed to be taken;
„h Improve the balance of trade with China in Pakistan¡¦s favour.
„h More incentives should be provided to the manufacturing sector.
„h Under-voicing as a major threat to revenues and manufacturing sector should be eliminated.
„h FTAs should be re-visited and better negotiating strategies should be adopted.
„h Tax burden should be lessened.
„h The energy costs should be made competitive
„h Competitive labor costs should be ensured, and China¡¦s economic policy on economic planning should be closely studied and an effort should be made to achieve synergy/complementarities with the Chinese strategies in the economic planning.
Proposing a strategy for Pak-China collaboration, he outlined the following priorities:
1. Ensure tariff concessions equivalent or better than the ones granted to ASEAN by China.
2. Adopt a planned approach to localizing production of selected products, substituting imports. Protect industries; improve technology and lower production costs to develop export competitiveness.
3. Prioritize joint ventures with Chinese companies, to promote local content, technology upgradation and training of work force.
4. Relocate a share of jobs that are displaced from China due to rising labor cost, to Pakistan.
5. Cascade tariffs on raw materials, intermediates and finished goods with special provisions for manufacturers who use high tariff inputs
6. Reform the tariff regime to reduce reliance on presumptive duty and sales tax at import for revenue mobilization.
7. Reform the tax regime to reduce the extraordinary burden of taxes on corporate shareholders vs. owners of unincorporated entities.
8. Reduce the cost of energy and labour to industry
He concluded his presentation with the recommendation that the government should develop policies and zones for the promotion of specific industries. In this regard, he suggested some specific industries for the SEZs which include:
1. Value-added/technical apparel/textiles, including man-made fibers
2. Engineering, including but not limited to auto-parts
3. Bodies and components for domestic appliances
4. Meat and milk processing
5. Petro-chemicals e.g. Naphtha Cracker to feed plastics
6. Low Sophistication Goods: such as footwear, crockery, fans, utensils etc.

Last speaker for the session Dr. Nadia Farooq made the presentation on the topic “An analysis of Incentive Package in Accordance to BOI’s Act for Special Economic Zones (SEZs)”.She elaborated that the Board of Investment has presented an Act for SEZs where the incentive package, legal aspects and rules are defined. Thus, her policy oriented presentation included the analysis of that Act with the comparison of other successful SEZs of different countries with their incentive packages followed by issues and recommendations. Speaking of SEZs and their importance in international perspective she highlighted that China, Vietnam, Malaysia, Bangladesh etc. are supreme examples of practical implication of grabbing huge investment in the context of SEZs where investors are given incentives in the form of tax exemptions, duty free machinery imports, income tax exemptions etc.
She maintained that the purpose of SEZs is to: (1) attract foreign direct investment; (2) serve as pressure valves to alleviate large-scale unemployment; (3) support a wider economic reform strategy; and (4) apply new policies and approaches as experimental laboratories.
Analyzing the difference between the SEZ Act 2012 and its modified version put forth in December 2015 she made the following points:
• The first Act for SEZs was made by BOI in 2012. According to this Act the developer (who develops the SEZ including; construction etc.) can get exemption from import duty for one time against all the imported material for the development and have all the tax exemption against all accruable income with relation to development for a period of 10 years.
• But according to the modified Act in Dec 2015, the definition of capital has been changed, where imports of vehicles for personal use are not allowed, both for the developer as well as the enterprise which was not written in the previous Act in 2012.
• Raw material has no exemption, while vehicles for personal use are not allowed according to the amended version. 5 years exemption of all duties is available for developer, while it was for 10 years according to the Act in 2012. 10 years exemption is same in both the versions for the enterprise if it starts production from 30th June 2020.
On the basis of her research Dr. Nadia Farooq also shed light on the differences in the SEZ’s incentive packages of different countries. Taking India, Myanmar and Belarus as examples she said, to attract investors and earn sustained revenues these countries practice step by step procedures. As for India, it provided 100 percent corporate income tax exemption for first five years, then 50 percent exemption for the next five years and then 25 percent for the next five years. Myanmar provided exemption for seven years, then 50% relief for five years, then 50% relief on current legal income tax for profit that is reinvested for five years. In case of Belarus there is no tax on all goods and services for five years, then 50% tax exemption while no taxes on real estate and purchasing vehicles.
Some of the major challenges identified and policy recommendations put forth by Dr. Nadia Farooq are as follows:
1. She noted that the capacity issues seem chronic as there are only 4 main officers working in the office of the BOI for SEZs.
2. There are no financial and legal experts available to the BOI, who can handle all of the assigned tasks according to the Act. So, transformation of institution is required.
3. It is written in the Act of 2012 that BOI secretariat must be formed, which still does not exist.
4. By comparing the incentives offered by all other countries, we can easily assess the differences. Whereas India, Mayanmar and many others have adopted the strategy of gradual decrease, we have lump sum incentives package.
5. Our industrial incentives other than SEZs are more or less same. So for attracting the business community we should consider the incentive model of India, Myanmar and Bangladesh etc.
6. China had relaxed policies for SEZs in 1980’s but now it is developed and no longer needs the incentive attraction as we need now.
7. Raw material has immense importance for production. In our incentive package, we don’t see any tax exemptions for raw materials. We can see that in many countries raw material has no tax in EPZs and SEZs but in local market they pay tax.
8. Amendment for raw material is very important and it is the need of the time. If we want to populate our SEZs, policies should be focused on the important issues related to the production mechanism.
9. Incentive package must address the components linked with ease of doing business i.e. transparency in business regulations and duration of financial procedures in court etc.
10. The difference between custom and non-custom zone is very important. Mostly where the SEZs are considered as custom zones (we can see the incentive program of India where they have clearly defined the domestic tariff area) the incentives package for SEZs is quite superior from other local areas.
11. The production from SEZ is always dutiable, but in the last incentive package by BOI, it has deleted this discrimination which will ultimately hurt the local industry.

After all the talks were delivered, Chair Dr. Salman Shah opened the floor for Question and Answer session. Considering that Karachi and Gwadar port would serve as entry ports for CPEC and will face growing load with an increase in commercial activities, Vice Admiral Ahmed Tasneem posed a questioned to Dr. Salman Shah about the need for special legislation aimed at enhancing the capacity and efficiency of these ports in load management and logistical terms. Calling it a critical question Dr. Salman Shah said that if Gwadar and Karachi port has to efficiently handle and meet the needs of western China and Eurasia, then it cannot be like Dubai or Salala port with no hinterland. The ports of Pakistan have to be like the Rotterdam or others with large hinterlands like the Chinese ports. Therefore, Karachi port and Gwadar port should be redesigned in terms of capacity and management in line with Rotterdam which has all the necessary facilities like storage and transshipment facilities. Dr. Shah added that one needs clarity of vision and organizational capacity to implement these ideas.

Posing a question to Dr. Ejaz Akram, AVM Saleem Akhter expressed his concern regarding some recommendations presented by some of the speakers in their talks that SEZs should be established near the urban centers, arguing against this proposition he said CPEC provides Pakistan an opportunity to develop its less developed regions which may also help assuage the grievances of infrastructure starved provinces. In response, Dr. Ejaz Akram identified governance driven by the old paradigm of 1960s as the biggest hurdle in the success of CPEC and urged to shed old political paradigm and develop new mechanisms to address current issues. In this regard, he also emphasized that media should also play a role in paving the way for new paradigm.
Presenting his views on the issue, Dr. Zafar Mehmood said that more economic clusters should be established in order to ensure the mobility and transfer of labor and technology.
Dr. Nadia Farooq said that the allocation of SEZs should be based on the competitiveness of the area in a particular resource base and raw material. As an example she said, Gilgit Baltistan is rich in gem stones, the SEZ there should be geared to utilize that potential of the region. On this account, Dr. Salman Shah said that cost effectiveness rather than political considerations should determine the location of SEZs. The task of setting up and managing SEZs cannot be left to bureaucrats sitting in Islamabad. While every province should prepare its own strategies, CPEC should be implemented as a national effort with a strong monitoring mechanism. Dr. Shah insisted that Pakistan will have to change its fiscal policy and investment policy. In fact he said every policy should be changed, otherwise CPEC would fail. He suggested setting up a separate CPEC Authority with monitoring and implementation mechanisms and strategies. Although CPEC is based on a bilateral agreement between Pakistan and China, in Dr. Shah’s opinion it has regional as well as global dimensions. On that account Dr. Shah proposed that CPEC should be renamed as International Economic Corridor. Dr. Shah opposed Pakistan’s de-linking from dollar system proposed by Dr. Ejaz Akram, arguing that since more than 90 per cent financial transactions are taking place still in dollars, it would not be advisable for Pakistan to move out of dollar area. However, he insisted that CPEC should be a Pakistan-driven venture. What to export and how to export, should be decided by Pakistan alone. If correct economic policies are framed and Pakistan manages to reap full advantages of the unprecedented investment offer under CPEC, Pakistan, after achieving a reasonable level of economic development, can occupy the place of the fifth economy of the world in the next 20 to 30 years.

Session III: Special Economic Zones: Challenges and Opportunities for Local Stakeholders.

The Third Session was presided over by Amb. (R) Khalid Mehmood (Chairman, Institute of Strategic Studies Islamabad). In his brief introductory remarks, Ambassador Khalid Mahmood discussed the importance of SEZs for raising the level of economic development in Pakistan and other countries, particularly in China. He introduced the worthy panelist which included Dr. Karim Khan (Assistant Professor Pakistan Institute of Development Economics, Islamabad), Mr. Ahad Nazir (Senior Researcher/Project Coordinator, Public-Private Engagement, SDPI), Dr. Inayat Kaleem (Assistant Professor and Head of IR., COMSATS, Islamabad), and Mr. Saleem Ranjha (Chief Executive Director, BOI).

While talking about “SEZs and Prospects of Domestic Economy of Pakistan”, Mr. Karim Khan said that the $62 billion worth CPEC primarily comprised of Infrastructure, Energy, Gwadar port and Special Economic Zones (SEZs) is a potential game changer as for as trade, market access, regional connectivity, and infrastructure development is concerned. However, he was of the view that CPEC also faces some coordination failures over the allocation of the routes, allocation of economic zones, and infrastructure development. Nevertheless, he said CPEC offers both; opportunities and challenges and Pakistan’s ability to enjoy the fruits of CPEC are conditioned with ensuring good governance, controlling rent-seeking, soft regulation and competitive private sector.He underscoredthatthe 1750 SEZs in China contribute 22 % to its national GDP , 46% to FDI, and 60% to exports. He attributed Pakistan’s sluggish economic growth rate to the lack of a coherent industrial policy and dichotomous industrial sector which prevented the country from fully utilizing its growth potential. Moreover, he maintained that the nationalization in 1970 and the ensuing decline in manufacturing growth led the policy makers to establish industrial estates and industrial clusters in the country. He said compared to industrial estates and industrial clusters, the SEZs offer more prospects of economic growth rate due to the fact that SEZs offer more fiscal and general incentives. He highlighted following benefits that SEZs can offer to the economy of Pakistan:
• Static Effects
– Industrialization and employment generation—firms in SEZs have linkages to the domestic market, so that their investors buy production factors from domestic sources
– Higher FDI and exports
– Cluster development, or agglomeration of certain industries
• Dynamic Effects
– Infrastructure
– Joint Ventures—the interaction of foreign firms with domestic firms
– Technological upgradation—the spread of knowledge from foreign corporations to domestic business
– Human Resources Development—competitive environment leads to skill development
– Urban Development
– Competitive Private Sector
• Experimental Effects—SEZs as Processes
– Comparison of alternative policy options as SEZs may serve as a treatment group
– Economic reforms—in the context of political decentralization, SEZs can encourage competition between regions for capital, spurring reforms on the local level—more political autonomy and more faster reforms within SEZs than the rest of the country
Dr. Karim Khan put forth the following threshold conditions for the success of SEZs
• Labor Policy
– Employment of local workers—in this regard, China has labor relations with other countries like Egypt, Mauritius and Nigeria etc. Pakistan should also come up with clear labor policy.
– Pakistan should have clear policy guidelines with regard to the protection of worker rights with respect to union memberships, working conditions and safety measures etc.
• Controlling Internal Rent-Seeking of Industrialists
– All the incentives given should be tied clearly with the efficiency perspectives.
• Solving Coordination Problem
– First, there was coordination problem over the allocation of routes—four routes have been defined.
– Second—the budgetary allocation for the completion of routes should be balanced based on the productivities of all possible routes.
– Third, the distribution of projects should be based on both the need and efficiency perspectives.
• Internal and External Security
– Good relations with neighbours
– Peace in Afghanistan and FATA
• Micro Foundation of Potential Exports and Imports
– Afghanistan and CARs could be potential market for fruits, meat, vegetables, fertilizers, textiles products and other grocery products.

Second speaker Mr. Ahad Nazir deliberated upon “SEZs and Development Policy: Industrial Modernization under CPEC”. Quoting from different models of SEZs, the presenter spelled out various requirements for successful SEZs. These requirements included inter-regional trade, people-to-people engagement, integrated infrastructure and the establishment of tax-tariff regimes. He also stressed upon an increased cross-border engagement between the business communities of the countries. Mr. Ahad Nazir also highlighted the need for Pakistan to integrate its transport framework with the other corridors of SAARC and CAREC.
At the end of his presentation He gave some policy recommendations for the government which included the following:
• Administrative capacities and ability to design, manage and reform infrastructure is still missing hence some critical civil service reforms are required.
• The government should initiate a large-scale outreach effort towards mitigating apprehensions of local communities in Baluchistan and Gilgit-Baltistan.
• It is important that people in both regions should be helped in foreseeing gains from public investment and cooperation with China and other friends of Pakistan.
• This cannot be done by the federal government alone. The provincial governments in larger provinces particularly Sindh and Punjab will need to support the smaller provinces.

Third speaker, Dr. Inayat Kaleem talked about the “Special Economic Zones in Pakistan: A Global Perspective” . He said the term “SEZ” covers a broad range of zones, such as free trade zones, export-processing zones, industrial parks, economic and technology development zones, high-tech zones, science and innovation parks, free ports, enterprise zones, and others.SEZ normally operates under more liberal economic laws than those typically prevailing in the country. Pointing out that SEZs would open Pakistan to global markets, Dr. Kaleem enumerated various benefits that SEZs would bring to Pakistan. These benefits include employment generation, increase in foreign exchange earnings, growth in exports and enhancement of revenues. Giving the example of China, he made a number of suggestions for successful SEZs. For example, in the first place he suggested Pakistan should go for what is implementable. It is necessary to have a large number of centers in Pakistan for the teaching of Chinese language. There is also a need for strong political will. Pakistan should follow a consistent policy towards CPEC and SEZs. One of the most important requirements is to maintain equilibrium between industrial development, which will be accelerated with the establishment of SEZs, and social policy that aims to address the social concerns in the wake of increased industrialization. He said, to ensure success for SEZs in Pakistan, it is absolutely necessary to maintain links with local communities. In this connection he mentioned Gilgit-Baltistan and Baluchistan.

The last speaker, Mr. Saleem Ranjha gave very valuable suggestions for promoting research on various aspects of CPEC and offered the services of BOI for those who wished to undertake such researches.
There were certain issues on which there emerged complete consensus between the speakers and the members of audience. It was agreed that CPEC should be Pakistan driven. Since BOI has to play a crucial role in the management of SEZs, its capacity should be enhanced. There was also agreement that the concerns of local communities should be addressed. It was also felt that there was a need for more research on CPECP, its projects, especially SEZs. Last but not the least, the need for expanding people-to-people contacts between Pakistan and China was stressed in order to promote understanding of each other’s culture.

The session Chair, Amb. Khalid Mehmood opened the house for Question and Answer session.

Stating that Pakistan’s economy is primarily agrarian in nature, Col. (R) Said Rasool, questioned as to whether CPEC and SEZs were all about industrialization and what would be the effect of the potential migration from rural to urban areas in the wake of CPEC and SEZs. Dr. Inayat Kaleem in response said that it’s a fact that industrialization comes at the cost of agriculture but referring to relevant research and literature he said it’s imperative to maintain the equilibrium and stressed if we could establish SEZs we could also establish Green Zones dedicated for agricultural purposes. He emphasized that Pakistan is blessed with natural beauty and has huge potential for tourist industry. Therefore, he urged the government that while pursuing industrialization special care should be taken about ensuring green economy.

Dr. Inayat Kaleem was also asked about his views regarding the often-expressed apprehension that Chinese companies could turn out to be the East India Company which ended in the occupation of India. Expressing his views Dr. Kaleem said it is imperative to understand the difference between the state owned and privately-owned enterprises. Unlike, the British East India Company, China practices public private partnership (PPP) which is based on the principle of non interference in the internal affairs of the host countries. They are more inclined to strengthen the institutions of the host country because it in return benefits them by increasing their productivity and efficiency.

 

Colonel Shehzad asked a very pertinent question related to the problems the CPEC might face due to its vulnerability to natural disastrous and landslides along the KKH and inquired about government’s vision for establishing an alternative route in order to avoid any disruption along this route which could cause grave implications for the entire project with a domino effect disturbing economic activities at both ends. Mr. Saleem Ranjha, suggested that the best alternative to CPEC can be the Ishkomen-Ghizer route which would revive the old trade routes with Afghanistan and Central Asian Republics (CARS). Presenting his own views on the issue Dr. Kaleem suggested that China must recognize this necessity because it’s the country which stands to benefit the most from all weather and secure trade routes. As for Pakistan, he said beggars cannot be choosers and Pakistan is prioritizing its limited options.

Dr. Rashid Ahmad Khan (Former Dean, Faculty of Social Sciences, University of Sargodha) performing the duties of Rapporteur summarized the overall proceedings of the seminar. He stated that the statements by Mr. Ross Masood Husain and Dr. Zafar Iqbal Cheema set the tone for the discussions. He quoted Mr. Ross Masood’s statement that the seminar was not only topical but also timely. Dr. Rashid Ahmad took note of the statement made by Mr. Masood that CPEC is no doubt a game changer but the interests of Pakistani entrepreneurs should be secured. He also highlighted the statement made by Dr. Cheema that CPEC is an unprecedented investment and outplays the Marshall Plan but it depends on how actively Pakistan participates in this game. He was of the view that the subsequent presentations made in the seminar all made an attempt to address two basic fundamental questions raised by these two speakers. He said all the presentations were excellent, informative, revealing, and comprehensive. He held that the papers shed light on those aspects of CPEC about which we were hitherto ignorant or didn’t have sufficient knowledge. The presentations addressed the questions related to the SEZs from various perspectives. It was true when it was said that the CPEC has completed its first phase and entered into the second phase whose hallmark is the SEZs. He said the presentations also highlighted the achievements of the first phase which are very encouraging and satisfactory. Now Pakistan and China are moving ahead with a confidence and hope to materialize the SEZs termed as the heart of CPEC by one speaker in his presentation. SEZs will not only attract investment but also generate jobs, income, revenue, increase exports, and thus bring the Pakistanis the real benefits of the CPEC. He said the presentations rightly pointed out some risks, some vulnerabilities, some apprehensions, and some fault lines but at the same time mentioned that overall both Pakistan and China have the resolve to address those weaknesses and vulnerabilities. The weak points he said were the lack of political will. But in the same vein he reassured that CPEC has been made part of the constitution of China which reflects the strong resolve of the Chinese to pursue this project. He was of the view that Pakistan needs political will, consistency and transparency along with other measures which can instill the spirit of confidence in the hearts and minds of the people of Pakistan. Concluding his remarks, Dr. Rashid Ahmed said that the seminar discussed the SEZs from domestic, regional and global perspectives and from the perspective of Pakistan’s economy, from the perspective of the benefits for the Pakistani people and from the perspective of integrating the regional trade and economy. At the end of the session Mr. Ross Masood Husain presented souvenir to Dr. Rashid Ahmed Khan and extended vote of thanks to all the worthy speakers and audience and commended the SVI team for its efforts without which the seminar would not have been made possible.

Media Coverage:

Print and electronic media covered the proceedings of the conference as is evident from the hyperlinks given below:

Business Recorder

Pakistan Observer:

Associated Press of Pakistan (Official Newswire)

https://photo.app.com.pk/photo/2018/04/former-caretaker-finance-minister-and-former-advisor-to-the-prime-minister-dr-salman-shah-addressing-during-one-day-national-conference-on-special-economic-zones-sezs-and-investment-opportunities-i/




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