Concept and Background
Establishing Special Economic Zones (SEZs) in a county is a fruitful strategy for promoting trade, employment and economic growth of that nation. A Special Economic Zone (SEZ) is a specific area of the land used to promote industrial growth in a country by providing more lenient economic and tax policies as compare to general economic policies in a country. Successful SEZ offer immediate access to high-quality infrastructure, uninterruptible power supply, clearly titled land, public facilities, and support services. In addition, streamlined regulatory enforcement, simpler business and establishment rules, expedited customs administration, and other special administrative and approval procedures are also offered in such zones. There are a variety of experiences of SEZ across the globe. According to the International Labor Organization (ILO) (2010), a tremendous growth in SEZs has been observed in the last 3 decades. For instance, in 1986, there were 176 SEZs in 47 countries; which reached 3500 in 130 countries in 2006. There are various models of SEZs across the globe like those of India, Bangladesh, Russia and China. China is one of the success stories as far as the successful functioning of SEZs is concerned. According to World Bank’s 2008 annual report, “by some estimates, there are approximately 3,000 zones in 135 countries today, accounting for over 68 million direct jobs and over $500 billion of direct trade-related value added within zones.”
Industrial development is considered as one of the most reliable strategies to promote long run growth of an economy. Since the last few decades, many nations are adopting industrial development planning to improve their economic growth. The example of the Asian Tigers has been the obvious one. However, to pursue this goal, one strategy is to specify areas for industrial development such as business parks, industrial estates, export processing zones, special economic zones, etc. We have experienced these in various countries around the world. China is the leading example in this regard. For instance, China has established almost 1750 Special Economic Zones (SEZs) at provincial and state levels by 2009. It is estimated that, at the national level in China, SEZs accounted for about 22% of national GDP, 46% of FDI, and 60% of exports (Zeng, 2010). Moreover, it generated in excess of 30 million jobs in China. Pakistan, like other countries, also endeavored to develop industrial estates, industrial clusters and special economic zones to promote domestic industry and extract foreign direct investment. However, it has not been as successful as China and Asian tigers are in this policy. In general, the evidence with regard to the failure suggests that the rent-seeking of the industrial class, poor governance are the main factors responsible for failure (Wang, 2013). Alternatively, the industrial class exploits the privileges which are associated with these zones. However, once the privileges are exploited; then, they come to their routine practices instead of trying to be competitive. Second, political influence, governance, and other regulatory issues also create hurdles for the success of these zones (Zeng, 2015). Likewise, the information and incentives problems seemed to have caused the failure of SEZs in various economies. Given these, most of the nations, India, china, Bangladesh, Russia have amended the SEZs Act by introducing new reforms to overcome the rent-seeking behavior, political influence, and other governance problems (Wang, 2013; Zeng, 2015). To resolve these issues, the existing literature suggests private SEZs and decentralized decision making is the optimum solution of these problems (Burman, 2006; Nallathiga, 2007).
SEZs in Pakistan:In Pakistan, various terminologies have been used to identify the clustering of industrial production. For instance Industrial estates, industrial clusters and special economic zones are the most used concepts in this regard. First, an industrial estate is an area consisting of many factories and business in single locality but it is relatively small area than special economic zone with limited liberal economic policies. The industrial failure in 1970s led the government to established industrial estates. Many sick industries forced the government to establish more than 100 industrial estates around the various locations in Pakistan. Similarly, an industrial cluster is a group of interconnected firms of common industry localized in one geographical region that encourages the social and economic development of related community. Pakistan also having some successful working industrial clusters such as; Sialkot Surgical Goods Cluster; Gujarat Ceramic/pottery Industrial cluster; Faisalabad Readymade Garments Manufacturing cluster; Khyber Pakhtun Khwa (KPK) Marble Cluster; Tannery/Leather Industrial Cluster and Gujranwala cluster etc.