KARACHI: Around 10 projects in the fields of automobile, auto parts, pharma and steel carrying an investment of Rs25 billion have been waiting for months to get tax exemptions and other incentives allowed in the Special Economic Zones (SEZs).

The government had announced the establishment of SEZs across Pakistan to invite foreign and local investors to set up industrial plants against one-time waiver of custom duties on plant and machinery as well as a 10-year income tax holiday – provided the units came into commercial production before June 2020.

In October, the UAE-based Al-Futtaim Group announced to set up a plant to roll out 30,000 Renault vehicles per year. This was to be a first serious entry of European cars into Pakistan, with a total foreign investment of $120 million.

Al-Futtaim selected Bin Qasim Industrial Park (BQIP) for setting up the plant and got approval from the National Industrial Park (NIP) Allotment Committee for 50 acres land for the project.

Auto vendors, who asked not to be named, said, it has now been three months that the NIP Board of Directors, for unknown reasons, has not given formal approval of land allotment to Al-Futtaim Motors. The sponsors, who had proceeded for the formation of Al-Futtaim Motors in Pakistan based on NIP’s commitment, have held back transfer of $120m equity and may even roll back investment if the delays continue.

Another major issue that is deterring investment in the provincial SEZs is the delay in approval of SEZ Enterprises by the Sindh government, they said.

To avail incentives under the SEZ Amendment Act 2016, the first step is the classification of a project as an SEZ Enterprise by the respective provincial government. So far, it seems the Sindh government has lost all interest in industrialisation as it has not held a meeting of the SEZ Board for the last six months, vendors said.

Resultantly, around 10 projects are stuck, with the sponsors being forced to pay custom duties and incur heavy demurrages at port, they added.

Lucky Group had announced to set up a plant to produce world renowned KIA compact vehicles at BQIP. They were allotted 130 acres land by NIP. However, they are unable to claim incentives allowed under the SEZ Amendment Act 2016 since their case for classification as SEZ Enterprise is lying in CM Sindh’s office for the last several months.

Other companies whose cases are held up at Sindh government include Barkat Frisian, Tecno Auto Glass, Universal Packaging, Young’s Food, Sci Life Pharma­ceuticals, Mehran Commercial Enterprises and Pinnacle Pharma.

It must be noted that BQIP and KCIP have been setup over 1,200 acres of land in the Pakistan Steel Downstream area and in Korangi Industrial Area respectively. They are expected to become the biggest cluster of automobile, steel and pharmaceutical manufacturers in the country.

The companies that are in the process of setting up plants in BQIP include KIA-Lucky Motor Co., Al-Futtaim Renault Motors, General Tyre, Hi-Tech Auto Parts, Tecno Auto Glass, Ahmed Glass, Horizon Steel, International Steel, Tayyab Steel etc. Total investment in these two SEZs is expected to touch Rs50bn in next two years.

Interestingly, vendors said Sindh is the only province that is meting out such treatment to long-term investment. On the contrary, Punjab government takes no more than two weeks to receive SEZ Enterprise status for projects being established in Quaid-e-Azam Apparel Park (QAAP), M3 Industrial City and Value Addition City, they added.

Meanwhile, talking to Dawn, Chairperson of Sindh Board of Investment (SBI) and Vice Chairperson of SEZ Authority Sindh, Naheed Memon said that there was no serious issue in giving the status of SEZ Enterprise to investment projects.

The reason for delay, she said, is that the SEZ status to industries approval agenda has been put in a meeting which will be chaired by Chief Minister Sindh, Mr Murad Ali Shah, who is also chairman of SEZ Authority Sindh. “Since there are other agenda items related to developing and building the capacity of this authority, this meeting needs to be held,” she said.

Due to some pressing issues, this meeting has been delayed thus resulting in delay in SEZ status approval,” she added.

“I am trying my best to give approval of SEZ status to the investors as soon as possible,” the SBI chief added.

Auto vendors said Pakistan is passing through a critical period of twin deficits. On one hand, there is a huge fiscal deficit due to gap in government expenditure versus tax collection while, on the other hand, the country is going through a serious current account deficit due to gap in imports and exports.

The only way to come out of the current account deficit is to attract Foreign Direct Investment (FDI), especially in long-term industrial ventures. Not only would such FDI bring valuable foreign exchange to Pakistan but this would also result in employment generation for over three million Pakistanis entering the workforce every year, they added.

Published in Dawn, December 20th, 2017