Earlier this month, three new special economic zones (SEZ) were approved by the Board of Approvals headed by PM Imran Khan. With that Pakistan now has approved number of 20 SEZs in total, which included the much touted ‘Pakistan’s first CPEC SEZ’, Allama Iqbal Industrial City. The headlines for these SEZ were accompanied by order or promises of timely availability of gas, electricity, and other basic utilities such as paved roads. Congratulations aside, this is such a last century model of SEZs!
Politicians and policymakers in Pakistan oft seem to forget that whilst the term SEZs is fairly recent, emperors and governments have been offering traders and investors with special sites with relaxed tax regimes and regulations since pre-modernity and even antiquity in some regions. When China mainstreamed SEZs as a deliberate tool in the 70s, it merely took an old concept and made it relevant for modern day and age developmental needs by adding elements relevant to the then time and place.
Since then, however, time has changed, in case anyone has not noticed. The reason why the number and importance of SEZs (which by the way come in many names and forms) has continued to grow globally despite falling average multilateral tariffs, FTAs/PTAs and competitive focus on ease of doing business nationwide instead of being confined to SEZs, is because tax incentives and availability of key resources or utilities isn’t the only driver of SEZs.
The ongoing third wave of economic zones across the world is based on the realization that these zones don’t just offer best business environment in terms of infrastructure, policy and governance or cashflow advantage due to customs ease, or location; but they also offer centres for excellence for collaboration and creation enabling comparative and competitive advantage required in the age of fourth industrial revolution.
And in addition to lower transaction frictions, lower production and operating costs, these zones allow governments to experiment with business policy reforms at a scale which is political acceptable. This is exactly why experts see traditional export processing zones to be gradually phasing out, and in their place the likes of Dubai Multi Commodities Centre, Labuan Offshore Financial Centre propping up and attracting investor interest.
Common to new wave of economic zones seem to be three key pillars. First, that investors need simple, effective legal/judicial framework, and therefore laws and arbitration framework applicable in economic zones are allowed to be different to that applicable outside the zones.
Second, that technology is central (and not complimentary) to the success of economic zones. This implies that 5G, automation, spaces for promoting fin-tech and other tech and media start-ups such as incubators and accelerators as well as other facets of the future of work such as co-working spaces and spaces for freelancers are integral part of economic zones.
Lastly, the idea of building communities, not only by setting up community centres, amphitheaters, conference halls and auditoriums, holding talks and events but also actively engaging with both business community and the society at large.
For some observers in Pakistan these pillars may only be fit for the developed world, and too cute for Pakistan. But imagine this: the pitch deck of the best SEZ in Pakistan being developed under close direction of the highest government office shows pictures of restaurants, electricity infrastructure, solid waste management trucks and other elementary stuff, whereas the pitch deck of economic zone elsewhere in the region rests on the just discussed three pillars of legal islands, technology and community. Those at the helm in Pakistan must question themselves: do they want to set up economic zones of the past, or of the future.
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