Special Economic Zone: Not So Special?

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Economy

The concept of Special Economic Zone (SEZ) has become ubiquitous as an infrastructural facility. These SEZs provide a combination of tax and tariff incentives, streamlined custom procedures, and less regulation by offering an investment climate that attracts both foreign and domestic investors to invest and establish industrial and business units. With an aspiration to promote and diversify the export market, the GoN, in 2016, had introduced the SEZ Act which evoked immense interest among the investors’ community in Nepal. But it seems that the much-hyped SEZ is losing its appeal among the domestic investors.

Out of the 17 proposed SEZs, the Bhairahawa SEZ is the only one that has been materialized so far. Although, the Bhairahawa SEZ was inaugurated on November 2014, the firms haven’t been able to commence full-fledged operations till date. The procedural delay from the government’s end has crippled the investors’ confidence. Additionally, the inability of the government to ensure adequate infrastructural development- uninterrupted supply of power, sewage and warehouse facilities, among other things- has instituted reluctance amid the investors. While firms are awaiting grid connectivity with adequate power supply to operate their factories, the authorities at Nepal Electricity Authority (NEA) and SEZ Development Committee (SEZDC) have been blaming each other for their coordination failure. The investors based in SEZs have also shown concern over the stipulated policy to export 75% of their total produce. The excessive land rent- Rs. 20 per square metre per month, which is much higher than international standards- is yet another matter of distress as it can not just financially burden the investors, but deter their participation, altogether.

The management of SEZs is awfully significant for a country like Nepal, whose economic growth has remained sluggish for the past many years. The gravity of institutional aspects for the well-functioning of the SEZs cannot be underestimated. Thus, it is imperative that the institutions governing the operations of the SEZs are competent enough. Likewise, inter-authority conflict must be minimized and focus should be directed towards accelerating economic growth and diversifying the industrial sector. For this, political commitment is necessary. The SEZDC should also relax the export policy by narrowing down the minimum export level and allowing the firms to gradually increase their exports, while contributing to domestic market at the same time. Furthermore, the excessive land rent must be reduced in order to be economically viable for the investors.

The SEZ will only prove to be special if it actually provides value to both the companies and the economy. So, is the SEZ special in true sense or is it just another failed initiative, this is for us to ponder upon!

 

Ankshita Chaudhary

About Ankshita Chaudhary

Ankshita is working as an intern in the Research as well as the Communications and Outreach Department at Samriddhi Foundation.

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