Special Economic Zones Most for Industrial Revolution

Special Economic Zones Most for Industrial Revolution

Hom Nath Gaire

            Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country’s typical economic laws. In more specific term of the day, SEZ is a trade capacity development tool with the goal to promote rapid economic growth by using tax and business incentives to attract foreign direct investment (FDI) and technology. By offering privileged terms, it is assumed that SEZ can attract domestic as well as foreign investment and foreign exchange, encourage employment and boost the development of improved technologies and infrastructure.

Moreover SEZ provide a mechanism wherein it not only attracts foreign companies looking for cheaper and efficient location to setup their offshore business, but it also allows the local industries to improve their export through a proper channel and with the help of the new foreign partners to the rest of the world at a very competitive price. This is because, SEZ offer relaxed tax and tariff policies which is different from the other economic areas in the country. Duty free import of raw materials for production is one example. Moreover the free trade zones attract big players who want to setup business without any license hassles and the long process involved in it. Most of the allotment, for SEZ, is done through a highly transparent and shorter one window system. The one of the motto behind to set up SEZ, therefore, is to increase FDI, enabling increased Public-private partnership and ultimately resulting in a development of world class infrastructure, boost economic growth, exports and employment.

China is the pioneer of the concept of SEZ where more than one third FDI is contributed by SEZs. The SEZ model, as the engine of growth was also successfully implemented in Poland and Philippines. In Poland the SEZs contribute almost 40 percent of the FDI inflows. Shenzhen in China has been at the helm of rapid economic development, after growing by an amazing 28 percent's annual growth in FDI for the last 25 years.

The SEZ policy was first introduced in India in 2000 AD, as a part of the Export-Import (EXIM) policy. It has been success to enhance foreign investment and promote exports from the country, to provide level playing field to the domestic enterprises and manufacturers to be competitive globally for the purposes of trade operations, duties and tariffs. Now there are more than 3000 SEZs operating successfully throughout the India.

Relevance to Nepal

The SEZ are important in today’s context for the least developing countries like Nepal, which has been suffering from low economic growth, huge trade deficit and mass unemployment. For undertaking any kind of massive development program the government requires huge amount of funds. So it looks out for potential partners to help the government carry out the program. Now say for setting up an SEZ, the government may tie up with a private partner whose willing to invest in that area, thus a win-win situation for both. As in the government gets the capital needed to establish the required infrastructure and also the expertise. The private player on the other hand gets the right to market and use the SEZ with relaxed tax laws, thereby increasing its revenue generating capacity and also moving out the economic growth of the company in a more efficient way with the better tax policies. Actually SEZs with relaxed import tariffs help the import dependent and export driven industries to flourish by helping them develop manufactured goods at competitive price.

            SEZs create immense employment opportunities. The setting up of SEZ creates lot of indirect employment in terms of labor required. After the completion it enables employment in the relevant industries operating in the SEZ. Then there are lots of indirect employments generated wherein people start investing around SEZ. For example SEZ are townships of their own; thereby there are shopping malls, restaurants, amusement parks setup around to attract people, thus resulting in more economic development in that area.

            Moreover SEZs improve the country’s export and help to reduce the trade deficit. Because of the increased FDI and private equity presence, the local manufacturers get to tie up with them and can export their products which carry a better brand value therefore helping in creating a greater demand for the goods of local manufacturers. Like wise, the massive capital required for the capacity expansion of domestic manufacturers can be brought in the form of FDI resulting in increased economic activity in whole economy. The increased exports from the country bring in more revenue for the country which further improves the economic growth. As a whole, SEZs help in creating a balanced economic growth in a country if they are properly located and implemented leading to tapping of local talent and contributing to increased economic activity in the area.

Current Scenario

Though the concept of SEZ was originated years ago, there is no SEZ operating in Nepal till now. The government has finalized some areas to construct the SEZs and even completed the construction of one SEZ in Bhairahawa. But the SEZ Bill is pending in the parliament, where it was tabled by the Ministry of Industry about three years ago. Giving reasons for the Bill not being approved by the Government, according to the Ministry of Industry, the Bill is facing opposition from some of the members of the ruling party.

Minister for Industry Anil Kumar Jha last week said the government will enact the SEZ bill through ordinance before the upcoming session of parliament to address investors´ concerns and promote industries. Speaking at a program organized by Confederation of Nepalese Industries (CNI) to discuss on draft Industrial Enterprise Act, Jha said the government was prepared to enact the law through ordinance as opposition from a faction of UCPN Maoist forced him to withdraw the bill from regular agenda during the last session of the parliament. According to source, Jha is discussing about the possibility of enacting SEZ bill through ordinance before the next session of parliament with the prime minister. Initially, labor unions protested saying it does not protect labor rights. But after trade unions softened their stance, resistance from a faction of Maoist emerged.

Industrialists, meanwhile, requested the government to enact the SEZ bill as soon as possible and to provide all the facilities promised in the bill. Once the SEZ Bill is passed, SEZ at Bhairahawa, bordering India will come in operation. Another SEZ is ready to set up in Simara, near of Birgunj dry port. SEZs on these locations will reduce transportation costs and make our goods more competitive in the Indian market. The SEZs would benefit the garment, carpets, handicrafts as well as other sectors of Nepal. 

(Published in the Himalayan Times on 2012-04-18)