The development of Special Economic Zones (SEZs) under the China-Pakistan Economic Corridor (CPEC) is the main vehicle for unleashing Pakistan’s industrial potential. The SEZs were included in the CPEC portfolio as they had a proven record of propelling China’s economic rise.
SEZ offers favorable policies and necessary infrastructure to promote economic activity. They are attractive for foreign companies as they facilitate their relocation and offer them the opportunity to gain a competitive edge. In addition, the regulatory measures are easy, which allows businesses to maximize their operations.
On the back of Deng Xiaoping’s market reforms, SEZs were set up in various parts of China. These SEZs provided manufacturers incentives in the form of lower costs of doing business and better connectivity. The success of land reforms in the early periods of China’s modernization helped in capital accumulation whereas the SEZs provided a lucrative option to invest those savings.
Foreign investors were also attracted by the possibility of availing cheaper input costs and gaining access to new markets. Within a few years, small towns and villages turned into economic hubs which accommodated millions of workers.
The SEZs also supported the integration of the Chinese economy with the global economy. By attracting foreign investments and technology, the Chinese government maximized the potential of China’s indigenous resources. The export revenue generated through the SEZs turned China into one of the strongest economies in the world.
One of the first locations in China to have an SEZ was the southern city of Shenzhen, adjacent to Hong Kong. The Special Economic Zone Status turned a small town into a thriving city and a trading hub. International companies rapidly set up their operations in the city after realizing its potential. New jobs were created and the population increased from 30,000 in 1979 to 8.6 million in 2007.
It was the first Chinese city where GDP per capita increased above US$10,000. The city outgrew many countries in terms of economy. Pakistan’s GDP in 2019 was more than $100 billion less than that of Shenzhen.
Pakistan’s dismal industrial performance in the last decade has seen the country being overtaken by its regional competitors in many areas and to revive local industries in the country, the government is now seriously pushing to bring the planned SEZs on the ground.
Since the early years of CPEC, Rashakai has been on the priority list with strong backing from China. Last year, when the development agreement was signed, the Spokesman for China’s Foreign Office stated that “it will inject new momentum into Pakistan’s economic development.”
At the launching ceremony, Prime Minister Imran Khan stressed upon the importance of providing adequate incentives to local and foreign businessmen and also pointed out flaws in the documentation process that discourage potential investors.
The Chinese officials have also taken up the issue of complex paperwork and they have been assured by their Pakistani counterparts that all efforts will be made to execute CPEC projects smoothly.
Despite the claims, the progress has not been very impressive as it has taken six years after the signing of CPEC to initiate the development of the first SEZ. The slow pace of progress has also gradually reduced the hype surrounding CPEC and some even doubt whether it will actually be realized.
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For the government, it is essential that it matches its words with on-ground activities to instill confidence in the business community which is looking at CPEC as the last hope.
What needs to be done?
The Rashakai Special Economic Zone has the potential to significantly boost Pakistan’s GDP and exports so the progress has to be monitored and a proper mechanism should be put in place to make the most of this project.
The range of incentives, regulations, and provision of facilitates should be worked out during the early stages of its development. This will not only help in making the SEZ up and running as early as possible but also lay out a framework for developing the remaining SEZs in the country.
Improving the connectivity of Rashakai is also critical as manufacturers need trouble-free and affordable access to markets. The National Freights and Logistics Policy published by the Ministry of Communication highlighted that achieving global competitiveness requires the ability to efficiently store and transport goods.
Modernized infrastructure and business-friendly institutions are thus also necessary to maximize the contribution of an SEZ. As Pakistan is aiming to attract foreign investors, it needs to understand what opportunities they are looking for in Pakistan and facilitate them accordingly.
In China, for example, many overseas investors set up their plants to export their products from Chinese ports and maintain their presence in the growing Asian markets. Moreover, investors have long-term targets and will also consider future economic stability in the country.
There are multiple factors that can determine whether an SEZ can deliver up to its potential or not and luckily for Pakistan, it has close access to Chinese experts who have overseen the success of Special Economic Zones in their country.
Author, Ali Haider Saleem has worked with the Institute of Strategic Studies Islamabad (ISSI) and National Defense University (NDU). His research interests lie in sustainable development, regional integration, and security cooperation. He has studied public policy at Queen Mary University of London and economics at NUST, Islamabad. The views expressed in the article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.