- Promising developments under CPEC awaiting realisation; reforms needed to overcome infrastructure, regulatory challenges
The efforts to develop Special Economic Zones (SEZs) in Pakistan aim at industrialisation and economic growth in the country. SEZs are known as part of an effective economic strategy for attracting investment, increasing exports, providing better public services and generating employment opportunities. These zones draw foreign and local investment and boost economic activity through incentives such as freedom in custom duties, tax breaks, modernised regulatory processes and efficient infrastructural facilities.
As part of its broader economic strategy for economic growth, poverty alleviation and reduction in regional disparities, Pakistan has been promoting SEZs for long.Currently, there are seven operating SEZs in Pakistan.Among them, Khairpur Special Economic Zone (KSEZ) facilitates agro-based industries, food processing and textiles. The potential of KSEZ lies in its strategic location close to major agricultural zones. However, it faces challenges related to infrastructure, investment and bureaucratic hurdles.
Bin Qasim Industrial Zone is the most important industrial area in Karachi located near to Port Qasim, which plays key role in Pakistan’s sea trade. This industrial zone provides facilities and infrastructure for several industries, particularly for heavy industries including steel, chemicals and auto parts manufacturing. The zone provides better export and logistics facilities. Though it has better infrastructure, more development is required in transportation and utilities.
Korangi Creek Industrial Park (KCIP) is an important industrial estate of Karachi. It was developed to provide a modern environment for commercial and industrial activities. This zone encompasses pharmaceuticals, consumer goods and engineering sectors. This zone attracts local and foreign investors through its modern infrastructure and offers ample opportunities for employment. Reliable energy supply, environmental protection and infrastructure improvement are crucial needs for enhancing its operational efficiency.
M-3 Industrial City,located in Faisalabad, promotes industrial development with focus on textile, pharmaceutical and engineering sectors. Its strength lies in high-quality infrastructure, strategic location and access to large labour force. Hattar SEZ, situated in KP,has several industries including food and beverage,cement, chemicals and pharmaceuticals. It has the advantage of favourable government policies and diverse industrial area.
In addition, Karachi Export Processing Zone (KEPZ) is Pakistan’s oldest SEZ designed for export industries, particularly garments, electronics and textiles. It is equipped with well-developed infrastructure and resources for export management. Quaid-e-Azam Apparel Park is placed in Sheikhupura and holds mostly textile industry. It benefits from modern infrastructure and targeted support for textile exporters.
The Special Economic Zone Act 2012 and the amended Act 2016 were adopted to enhance industrial development by creating economic zones and providing business-friendly environment. These zones were initiated to attract foreign direct investment (FDI), increase employment opportunities and achieve higher exports. However, none of the 27 notified SEZs could become a success story. Several issues such as infrastructure delays, land acquisition problems, inconsistent policies, regulatory faults and bureaucratic hurdles, have constrained the progressive development of these zones.
The establishment of nine SEZs under CPEC is a promising step towards modern industrialisation. Among the nine SEZs, four are under construction including Rashakai Economic Zone, Allama Iqbal Industrial City, Dhabeji Special Economic Zone and Bostan Special Economic Zone.The development of SEZs under CPEC remains slow and less attractive as yet. Rashakai Economic Zone, situated in Khyber Pakhtunkhwa, has been launched for investment. It is uniquely placed to access local and regional markets but remains a work in progress.
Allama Iqbal Industrial City, situated in Punjab, is also going through the construction phase. Being adjacent to M3-Industrial City and having capacity to accommodate a variety of industries, it is expected to make significant contribution towards industrialization and employment. Dhabeji SEZ, located in Sindh, has an easy access to Port Qasim. Likewise, Bostan SEZ, situated in Balochistan, is well placed in terms of connectivity and is feasible for diverse industrial sectors.
Overall, Pakistan’s SEZs face several challenges that should be addressed to realise the desired outcomes. Major challenge comes from inadequate infrastructure. Flaws in facilities pertaining to electricity, transportation and water supply impede their operational capacity. Complex regulatory and bureaucratic environment is another well-known issue that adversely affects investment in SEZs. SEZs are believed to generate industrial activity through provision of sound infrastructure and simplified regulations.
In Pakistan’s case, bureaucratic red tape and inconsistent policies cause project delays and increased operational expenses, discouraging domestic and foreign investment. Then, most of the SEZs lack the availability of skilled labour force for effective industrial operations. Further, security concerns are the most conspicuous issue, particularly in parts of Sindh and Balochistan. Finally, a serious problem is the land acquisition and displacement of local communities. SEZs require large areas of land that sometimes leads to disagreements with local owners of the land. This issue can be eased through transparent land acquisition procedures and appropriate compensation mechanism.
Pakistan needs a clear direction to undertake long-term commitments, adopt friendly policies, and build investors’ confidence. In the development of infrastructure, public-private partnership can prove instrumental. For skilled labour force, there is need to establish not only strong industry-academia linkages but also new technological and vocational institutes. Above all, Pakistan has to adopt structural reforms to address the governance issues that seriously discourage investment in the SEZs.
SEZs hold great promise for Pakistan’s economic growth as they offer opportunities for modern industrial development, increased exports and employment. Economic competitiveness and diversification are the way forward towards Pakistan’s faster economic recovery. In this regard, addressing existing impediments by recourse to effective policies and strong governance is vital.Through CPEC partnership with China, Pakistan can learn from the Chinese rich experience with SEZs as drivers of economic growth. Pakistan’s success in realising true potential of the SEZs can play key role in changing the country’s economic landscape and securing a prosperous future.
The article is based on the HEC-funded research project under National Research Programme for Universities (NRPU).
The writer is Professor at Department of International Relations, National University of Modern Languages (NUML), Islamabad Email: mrshad@numl.edu.pk