Japan looks for zone boost in Pakistan
By Syed Fazl-e-Haider
QUETTA, Pakistan
- Japanese manufacturers, increasingly sidelined in Pakistan as consumers
there turn to cheap Chinese products, are looking to boost their influence and
market share in the South Asian country as development of a Chinese special
industrial zone in Punjab province struggles to get off the ground.
Land acquisition and financing issues have slowed development of the
China-Pakistan Economic Zone (CPEZ), at Kala Shah Kako, near Lahore, since a
ground-breaking ceremony in December 2006 attended by Chinese President Hu
Jintao and former Pakistan prime minister Shaukat Aziz.
Now a special economic zone is about to be established for Japanese companies
in the south of Pakistan, only one part of the country where everything from
motorbikes to refrigerators is
more
likely than not to carry the stamp of a Chinese
manufacturer. Goods
from both zones will be marketable within Pakistan as well as overseas.
The CPEZ followed a memorandum of understanding between Ruba Group of Pakistan
and China's consumer electronics products giant, Haier Group, to set up the
first overseas industrial zone established by China. The Haier-Ruba venture
brought in an initial investment of US$35 million, and nearly two dozen Chinese
companies have already committed to invest in the proposed CPEZ, which is being
established exclusively for Chinese investors and Pakistan-China joint
ventures.
Further development has been considerably delayed over the issue of sharing the
cost of land, with Haier-Ruba refusing to pay for 1,700 hectares out of its own
pocket.
Haier-Ruba insists that the land should be provided free, or at subsidized
rates, according to Business Recorder. The Federal government plans to buy land
from the Punjab government through National Industrial Parks (NIP), and if
Haier-Ruba backs out, other investors would be invited to acquire land, the
report says.
Citing official sources, the report claims that government has proposed the
acquisition of about 1,200 hectares of land in the name of the federal
government for leasing to Haier-Ruba. In a meeting held at the president's
secretariat on February 14, it was decided that NIP, which is wholly owned by
the Pakistan government, would buy about 1,700 hectares acres of land and
develop it for use by Haier-Ruba as a special economic zone(SEZ).
The zone, established under the Free Trade Agreement (FTA) signed in 2006
between Pakistan and China, would comprise an industrial park, a science and
technology park, supply chain industry, a skill development center and a
research and development center. Under the FTA deal, China is selling Pakistan
increasing amounts of goods ranging from household items to textile plants and
sophisticated technology items, while getting in return cheap raw materials and
easy access to Pakistani ports for onward export of its goods at reduced
freight rates.
Local analysts consider the proposed CPEZ to be very important for Pakistan's
ailing export sector, as all goods manufactured in the zone would have
tariff-free entry into the Chinese market.
Islamabad has already announced a special package, including a five-year tax
holiday, for projects in the proposed CPEZ. Machinery and accessories imported
for development of the zone will be fully exempt from duties and taxes and the
existing 50% initial depreciation allowance will be increased to 100%. Normal
export incentives available to projects established anywhere in the country
will be applicable to exports from the zone.
Haier, China's largest and the world's fifth-largest home appliance-maker,
entered Pakistan with an initial investment of about $35 million to create a
joint venture, called Haier Pakistan, with Ruba General Trading Company. During
the past five years, the partnership has achieved impressive results, becoming
Pakistan's top maker of air-conditioners, second-largest washing machine
producer, and third-largest producer of refrigerators.
Haier Pakistan is expected to produce 900,000 pieces of household appliances
per year and plans to export to the Middle East and Asia.
Undaunted by the delays in getting the Chinese special economic zone fully up
and running, Japan plans its own SEZ for Japanese investors in Pakistan.
Construction of a tax-free Japanese SEZ is due to start next month at an
initial cost of $5 billion in the southern port of Karachi, in Sindh province.
It is hoped that its tax status and location will help to add to the 22
Japanese companies, including Suzuki Motor Corp and Toyota Motor Corp,
operating in Pakistan after security concerns deterred more arriving in recent
years.
Terms for potential investors in the new zone, which is targeted mainly at
hi-tech and heavy industry companies, include 100% equity and the free flow of
money with remittances of royalty and technical fees. Suzuki, Sony, Yamaha and
Marubeni are among Japanese outfits that have reportedly shown interest in
establishing units in the SEZ.
Japan and Pakistan are also considering a joint investment company to boost
investment activities by providing soft loans to establish industries. Local
analysts believe that establishment of an SEZ would help promote Japan's
competitive edge with China within Pakistan.
Five years ago, Japan dominated the motorbike market in Pakistan but now Honda,
Yamaha and Suzuki are losing sales to Chinese bikes. Out of 53 units now
assembling two-wheelers in Pakistan, 50 are Chinese and only three are
Japanese. The latter has been forced to slash prices to drive sales, with
limited success.
In Karachi, the country’s financial, industrial and commercial hub. Chinese
bikes have secured more than 80% of the market.
The central Pakistan government has also offered Japan the opportunity of
establishing an exclusive economic zone in Gwadar, a strategic port it is
developing in Balochistan province and where China has so far been the biggest
foreign investor.
Syed Fazl-e-Haider, sfazlehaider05@yahoo.com, is a Quetta-based
development analyst in Pakistan. He is the author of six books, including The
Economic Development of Balochistan, published in May 2004.
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