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TematicheMedio Oriente e Nord AfricaNo progress in CPEC SEZs is hurting industrial growth...

No progress in CPEC SEZs is hurting industrial growth of Pakistan


Pakistan’s plan of emulating successful Asian economies for manufacturing growth in the country is now falling apart. The country adopted the Special Economic Zones (SEZ) model of industrialization with the passage of the SEZ Act in 2012.  However, its efforts to bridge the industrial shortfall through SEZs have remained a non-starter due to a multitude of reasons.  Lack of coherent planning and favorable support system coupled with institutional corruption and lethargy come up as most prominent factors behind the failure. However, a major reason which generally escapes policy scrutiny is Pakistan’s over reliance on one country, China, for all its capital and technological needs. 

The SEZ projects under the umbrella of China Pakistan Economic Corridor (CPEC) are facing considerable delays due to protracted Chinese decisions on investments and local protests. Even the passage of Pakistan SEZs Act (Amendment) in 2016, which paved the way for a 10-year exemption from customs duties and taxes for all capital goods imported into Pakistan could not expedite their development. A deeper analysis of the role played by China in majority of these projects reveal the reasons behind snail pace of growth of CPEC SEZs. The terms of support extended by Beijing in majority of these projects has either been highly conditional or overly exploitative. 

Even after Islamabad’s unconditional support and the 2016 amendment, out of the nine SEZs under CPEC, only three have witnessed some meaningful progress. These include Allama Iqbal Industrial City in Faislabad Punjab, China Special Economic Zone in Dhabeji, Sindh and Bostan Industrial Zone in Balochistan. The remaining projects continue to be entangled in Chinese discussions, studies and surveys. Playing according to Beijing’s policy of ensuring maximum profit at the cost of natural resources and interest of labor in Pakistan, the Chinese companies involved in the development of SEZs have to regularly face local protests.  

The smaller zones are also affected by on-ground problems. While announcement of such zones is a frequent PR exercise, only a few of them see actual on-ground progress. Recently, the Pakistani government was reported to have rejected a proposal of a 99-acre multi-industry Private Zone in Lahore. The proposal was submitted by a Chinese company named M/s Challenge Fashion Pvt. Ltd (CFPL), a subsidiary of M/s Shanghai Yuanyi lndustry Ltd. Notably, the Challenge textile company had some time back acquired 25% stake in Masood Textile Mills in Faisalabad; a hub of Pakistani clothing and textile manufacturers. The SEZ proposal was turned down due to the growing angst of the local community who see the proposals by Chinese companies as a threat to economic and social environment in Pakistan. The government was also wary of issues arising out of forceful acquisition of land from locals to setup SEZ for China. The action would have given birth to additional problems over compensation between government authorities and landowners.   

Most of the SEZs under CPEC have a major focus on textiles, a fact which makes the Pakistani businesses nervous. This indicates that textile industry, which is the backbone of domestic economy and livelihood support for millions of poor Pakistani workers, is among the main targets of Chinese policy. Though not initially indicated, Chinese private companies are investing heavily in textile production, a sector that contributes around 8-10 % of gross domestic product (GDP) and employs about 45% of the total industrial labor force. Apart from textiles, harnessing its endowment of natural resources including metal and minerals has been an important part of Pakistan’s vision for its industrial and trade growth. However, even this possibility could not escape the Chinese gaze; eventually leading to SEZ projects in Khyber Pakhtunkhwa (KP) and Gilgit Baltistan (GB). The development of Mohmand Marble City in Federally Administered Tribal Areas of KP and Maqpoondas SEZ in Gilgit-Baltistan is said to be aimed at exploitation of natural minerals of these areas. These zones will house industries in the fields of marble/granite, iron and other ores. This has sparked protests by original inhabitants of KP and GB who often charge Pakistan government with illegal sale of their natural resources to China. 

The disillusionment of ordinary Pakistanis regarding Chinese investment in industrial sector of their country can be attributed to lack of employment opportunities or other tangible benefits to them. Local workers and business owners are also wary of Chinese style of functioning which rarely involves forming partnerships or joint ventures with local businesses. Chinese investors’ preference is mostly towards establishing fully-controlled businesses which would mean further erosion in local businesses and jobs. 

Blindly following Chinese dictates in return of easy funding under CPEC has led to a situation of Chinese occupation of most of the long-term investment opportunities in Pakistan. Having excluded other potential investors from many sectors of Pakistan, Beijing is now taking a lot of time in executing the pledged and deciding about the incremental investments in CPEC projects. However, these inordinate deliberations are pushing behind Pakistan’s development by decades. 

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