Special Economic Zones Must for Industrial Revolution By HOM NATH GAIRE(Source:THT, 2012-04-18)

A 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 terms, 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 provides a mechanism wherein it not only attracts foreign companies looking for cheaper and efficient location to set up 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 offers 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 set up 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. One of the mottos 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 per cent of the FDI inflows. Shenzhen in China has been at the helm of rapid economic development, after growing by an amazing 28 per cent’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 successful in enhancing foreign investment and promoting 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 India. The SEZs are important in today’s context for the least developing countries like Nepal, which have 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 for setting up an SEZ, the government may tie up with a private partner willing to invest in that area, thus a win-win situation for both. 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 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 prices.

Though the concept of SEZ 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.

The Industry Minister had said sometime ago 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 draft Industrial Enterprise Act, he had 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 the regular agenda during a session of the parliament. According to a source, discussions are on of the possibility of enacting SEZ bill through ordinance before the next session of parliament. 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.