Special Economic Zone Act 2012 – Aiming for long term FDI

                                                                   Majyd Aziz

“A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws."Nationwide" laws may be suspended inside a special economic zone. The category SEZ covers, including free trade zones (FTZ), export processing Zones (EPZ), free Zones (FZ), industrial parks or industrial estates (IE), free ports, free economic zones, urban enterprise zones and others. Usually the goal is to increase foreign direct investment, development of infrastructure and to increase employment.” – Wikipedia

On September 10, 2012, at an impressive ceremony at the Presidency, Pakistani President Asif Ali Zardari gave his consent to the Special Economic Zone Bill 2012. The journey from conception to signing took four long years but it was worth the wait. It all began when Pakistan Japan Business Forum, a bilateral Forum that I helped establish, floated the idea of a dedicated SEZ for the Japanese investors. The ball got rolling when Salim Mandviwalla, the energetic Chairman of Board of Investment embraced this idea and motivated his team to prepare an attractive SEZ package.

It was approved in 2008 by the Economic Coordination Committee of the Cabinet while the Federal Cabinet accorded approval in principle for initiation of legislation in 2010. The Council of Common Interests also discussed this bill due to introduction of 18th Amendment. CCI approved the bill in August 2011. The Senate accorded approval in January 2012 and National Assembly on July 13, 2012.

The Act would allow Developers and Zone Enterprises to plan and operate in an enabling environment that would include security, safety, availability of physical and social infrastructure, and access to all incentives, facilities, and rules of business. The central aspect of the Act is the formation of a high-powered Board of Approval with the Prime Minister as the Chairman. This, in itself, manifests total commitment towards development and success of SEZs.

The salient features of the Act include the approval of Zones not less than fifty acres. Upto 30% of the Zone could be used for social infrastructure. This would be attractive for those investing and working in any particular Zone. The government would ensure the provision of public utilities and transportation links upto the zero point of the Zone.

Furthermore, the government would promote the adoption of simplified administrative procedures for SEZs with relevant Federal and Provincial authorities and agencies. Such facilitative procedures include issuance of licenses, permits and approvals, satisfactory customs and other documentary requirements, easy fulfillment of tax or duties obligations, and support and authorization of modern means of communication and e-governance.

The country’s labor laws would be equally applicable to the Zone Enterprises too. Moreover, the Board of Approval may, after consultations with concerned Ministries and governmental agencies, issue special rules for employment of non-Pakistanis in key managerial and technical positions. These relate to issuance of visas, temporary residence permits, as well as temporary work permits. Their dependents would be facilitated though these special rules.

Each Zone shall be designated either as a Free Trade Zone, Export Processing Zone, Multilateral Economic Zone, Regional Development Zone, Reconstruction Opportunity Zone, Hybrid Export Processing Zone, Sector Development Zone, or Extra-Territorial Zone depending on specified characteristics. An ETZ would be out of the ambit of the customs territory of Pakistan so that transportation of goods and provision of services from and to these areas and to and from the customs territory of Pakistan shall be considered as export and import. They would get the same treatment for rebates and other advantages. All incentives under this Act shall be in addition to all incentives, benefits and protections that may be applicable to Developers and/or Zone Enterprises under generally applicable legislation and international agreements of Pakistan. These benefits shall not be withdrawn prematurely and any changes shall be to the advantage of the Developer or the Zone Enterprise.

Developers shall be entitled to the following benefits:

(a) One time exemption from all customs duties and taxes for all Capital Goods imported into Pakistan for the development, operation and maintenance of a SEZ entity, subject to verification and approval from Board of Investment.

(b) Exemption from all taxes on income accruable in relation to the development and operation of the SEZ for a period of ten years, starting from date of signing of the development agreement.

All Zone Enterprises shall be entitled to the following benefits:

(a) Exemption from custom duties and taxes on imports of capital goods into the SEZ for installation there

(b) Exemption from all taxes on income for a period of ten year starting from the date the Developer certifies that the Zone Enterprise has commenced commercial operations with the relevant SEZ.

A very relevant feature is the alternative dispute resolution clause. It would be advisable to utilize the expertise available at Karachi Center for Dispute Resolution to prepare an effective mechanism for a mediation process so that the investors and developers can utilize their energies towards the success of their endeavors.

Pakistan is strategically well-placed to be the ideal center for setting up industries to cater to the Middle East, Central Asian Republics, and Afghanistan markets. The country also welcomes import-substitution industries. The future benefits of the Act for Zone Enterprises would be immediate savings in taxes, duties, and other front-loading charges, a safe and secure working environment, preferential treatment of products and services (such as Reconstruction Opportunity Zones concept initiated by US Government but remains in limbo till this day), and, more importantly, accessible domestic and global markets.

 

The various bilateral Forums, FPCCI, the Chambers and Associations, as well as Pakistani diplomats based in foreign countries must promote the SEZ Act. The Prime Minister should order the setting up of SEZ Authority and advise the provincial governments to set in motion plans to establish the Provincial SEZ Authority in their respective provinces. Hopefully, Chairman BOI must have set up the relevant infrastructure in the Board so that the foundation for implementation of the Act is firmly established. Pakistan urgently needs foreign direct investment and the Special Economic Zone Act is the Motorway on which FDI will substantially enter this country.

Business leaders have to play on the front foot

                                                                           Majyd Aziz

The near-total collapse of law and order enforcement in Karachi, inspite of the ever-presence of police, paramilitary forces, armed private security guards, salaried neighborhood vigilantes, and even bands of concerned citizens, has shaken its foundation. This has created a panicky situation for the citizens who are justifiably terrified and who fear that the upward trend has made living in Karachi a nightmare.

Recently, in back-to-back meetings, the apex body Federation of Chambers of Commerce and Industry (FPCCI) and Karachi Chamber of Commerce and Industry (KCCI) held deliberations to evolve a strategy against the worsening and never-ending law and order issue. They announced strikes, albeit on different days. The Sindh Chief Minister tried to convince them to withdraw their calls by giving hollow pledges. The Sindh Governor held a marathon four-hour joint session with the FPCCI and KCCI leadership. Although the first meeting did not produce result, the Governor was able to get them to postpone the strike.

The strike would create headlines, would create some bad blood between businessmen and the political government, and would further create temporary waves but would not solve this menace. The postponement of the strike call reflects the back foot stance that is common when people in the corridors of power prevail upon business leaders.

It is now time for the business leadership to play on the front foot like cricket players in Super Sixes matches. They should adopt a radical strategy to prove their point. This is not the time to do a Misbah-ul-Haq. This is also not the time to play like Shahid Afridi of today. The time has come for batting like Brian Lara. The writing is on the wall. Karachi is becoming a war zone.

So, what should they do? The economy is not encouraging while transferring assets abroad is not the only viable solution. They know that diabolical internal and external forces are making it an insurmountable task for them to bring about sanity in their businesses. Therefore, the following demands and actions be initiated.

• Whenever there is a landlord-tenant dispute, invariably the rent is deposited in the court until the matter is decided. Similarly, the leadership should announce that the businessmen would deposit their taxes with Supreme Court requesting it to decide on release of the revenue to FBR after ascertaining improvement in law and order.

• Organize a private security force of retired commandos to devise and implement a security strategy for trade and industry. Chief of the Army Staff be requested to delegate a serving Major General to assist the security force.

• Advise the Governor to order Inspector General of Police, Director General of Rangers, Home Secretary, and representatives of sensitive organizations to hold a weekly meeting with them on a designated day, time and place and update them with the handling of the law and order situation.

• The promises of arms licenses to businessmen should be translated into practical implementation.

• Political parties must be given a strongly-worded warning that they should help bring peace in the South City instead of playing politics.

• Demand COAS to come heavy against the banned terrorist groups that have found haven in Karachi.

• The business leadership must shed personal conflicts and unite to achieve objectives of peace and security in Karachi.

Karachi is the economic mega city and any criminal event in Karachi is detrimental to prosperity of Pakistan. Taking a lackadaisical attitude towards ushering in peace is against all norms of good governance and reflects submission to terrorists and criminals. The business leadership must act now, by playing on the front foot.